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The Indian BPO industry was 2% of the global market in fiscal 2002-03
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Revenues grew 59% to Rs 11,300 crore in 2002-03, according to Nasscom
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Captive centers led from the front, accounting for 90% of overall growth
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Low domain skills and high attrition rates were the biggest challenges
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Despite the many challenges it is facing and the cries of
protest emanating from across the globe, the Indian BPO industry has managed to
put up a brave front and is poised for growth in the coming year. But in the
year to come, margins will be thinner, competition will be fierce and new
service lines will have to be explored.
Stronger ‘Brand India’
Despite a tough market scenario, the BPO industry was able to garner 2% of
the global market in financial year 2002-03. According to Nasscom estimates,
revenues generated by the BPO industry grew 59.1% to reach Rs 11,300 crore in
2002-03.
Indian vendors were successful in building a strong India
brand among the global Top 500 firms. As a result, India became the preferred
destination for outsourcers over other competing nations like China and the
Philippines, among others. Brand India, which was until now associated with low
costs, managed to break free of that image to metamorphose into the new Brand
India, which "offered process re-engineering and excellence", and was
viewed as a "quality differentiated destination". The year also saw
Indian companies targeting higher value-add and premium outsourcing processes.
Even in the call center business, there were greater numbers
of high-end support centers being opened up in India. Many captive units set up
by multinationals saw upgradation of operations in 2002-03, apart from the
setting up of new ones. In the coming year, the biggest challenge that Brand
India will face will be increased competition from captive centers in the
country, whose numbers have been rising exponentially.
Customer contact—voice, e-mail and chat—remained very
much in focus. Customer contact registered double the growth over the previous
year, in terms of both revenue and employment-generation. It clocked a revenue
of Rs 3,969 crore in 2002-03, against Rs 1,960 crore in 2001-02. Finance
followed with Rs 2,499 crore in 2002-03. Content development, administration,
payment services and HR followed these, in that order. Notably, a major chunk of
the growth was contributed by captive centers, rather than by third-party
players.
Third-party vendors were faced with increasing competition
and a number of them opted for consolidation or tied up with larger IT firms.
Take, for instance, Wipro buying out Spectramind. Wipro initially bought a 24%
stake in Spectramind for Rs 4.8 crore in October 2001. In July 2002, Wipro upped
its holdings to 90%, paying an additional Rs 407 crore.
Those third-party vendors who couldn’t manage the front-end
systems (read marketing and sales) lost out on sustained revenues. Those who
lacked up-to-the-mark back-end systems (read delivery)—which led to unviable
and high costs and, in turn, loss of customers—fell off the BPO radar
altogether. On the one hand, while bigger players like Wipro Spectramind could
leverage on the brand equity of parent company Wipro, on the other, smaller
players had to forge new relationships and do greater legwork to bag orders.
Small-time players were the hardest hit by the consolidation wave, with many
even resorting to leasing out their premises to bigger players. According to
Voice&Data, in the National Capital Region alone, about 15 companies leased
out their premises. Fierce competition and undercutting also made life tough for
small players.
Captive players lead the field
According to Nasscom, the Indian BPO segment commands 2% of the global
market. The marketshare is projected to grow to 4.8% by Year 2008. Nasscom
predictions also indicate that customer care will continue to be the biggest
growth area and should account for between Rs 39,200 crore and Rs 41,650 crore
by 2008, followed by HR. New service lines such as engineering/R&D,
logistics, education and sales are expected to be the hotspots of activity in
the years to come.
Captive players had a significant impact on the Indian BPO
industry in the year under review. Their presence almost doubled and, in fact,
while their numbers lagged behind those of third-party vendors in 2001-02, they
managed to gain a significant lead in 2002-03.
As per Nasscom estimates, from exports worth Rs 3,479 crore in
2001-02, revenues from captive players jumped to Rs 6,615 crore in 2002-03. For
third-party players, revenues rose from Rs 3,768 crore to Rs 4,827 crore.
US continues to be the hotspot
The United States continued to be the major destination for BPO deals, with
a bulk of outsourcing projects coming from that geography. Apart from the US,
there was an increase in the volume of projects coming in from companies in the
United Kingdom. However, there was a decline in the number of projects from the
rest of Europe and other geographies. According to Nasscom, the percentage of
projects coming from Europe (excluding the UK) stood at 9% in 2002-03, compared
to 11.1% in 2001-02. For the rest of the world, volumes dipped 6% in 2002-03
from 9.2% in the previous year.
The big malaise: Employee turnover
The BPO industry is still evolving and thus faces a number of challenges,
the biggest of which is retaining employees. High attrition rates are common and
the industry is trying to tackle the problem by coming up with innovative
schemes like incentives for good performers, sponsoring employees for
professional courses like MBAs, providing gymnasiums and in-house cafes—and in
a final centralized effort, placing a ban on "poaching". However, lack
of clarity on career growth paths, night shifts and long commutes in cramped
vehicles are a few of the deterrents that keep attrition rates at high levels—these
hold particularly true for women employees. The condition is grave not only at
the processor or lower levels, but also at the middle and senior management
levels—and this transient nature of the workforce is what top players have
finally got together to tackle.
Resultantly, there’s a dearth of skilled personnel at all
levels of the BPO industry. Training institutes have come up with BPO
industry-specific courses in accent neutralization, customer handling, team
spirit and leadership—but not many offer domain-specific training. For now,
therefore, supply is far short of demand. Despite the backlash, a few Indian
companies saw about a 200% increase in RFPs (request for proposals) from
prospective outsourcing companies in the US.
The road ahead
The BPO industry’s future looks promising, backlashes and challenges
notwithstanding. According to Nasscom, the industry will register a healthy
growth rate of 54% in 2003-04, with revenues slated to touch Rs 17,640 crore at
current exchange rates. But the industry will need to source global talent for
process re-engineering and improvements, decrease the cost of ownership and
provision multiple sites for business continuity. Players will increasingly use
frameworks such as COPC (Customer Operations Performance Center) and Six Sigma
to enhance efficiencies. Also, there’ll be pricing pressures, thinning margins
and heavy investments to be made. Therefore, the growth path, steep though it
may be, is strewn with boulders of very many kinds.
MANJIRI KALGHATGI &
NEETU KATYAL
The Rub-off Effect
The burgeoning BPO industry has helped spawn a host of ancillary industries—segments
like transportation, catering, security and lodging. According to Nasscom, the
total worth of the BPO industry during 2002-03 was Rs 11,300 crore. About 40%
was spent on salaries. Overheads accounted for another 40%—and it was this
category of spend that spawned ancillary industries.
In all, the BPO industry is estimated to employ about 170,000 people. On an
average, about Rs 12,000 per month is spent on overheads for each employee—mainly
on the four segments mentioned above. Of this, an estimated 30% is outsourced.
Given this permutation, the ancillary industries were worth about Rs 74 crore in
2002-03, and this figure is set to grow as more BPO centers open up. Besides
revenue generation in the ancillary segment, increasing BPO activity has also
resulted in the creation of additional jobs.
Take, for instance, transportation. According to S Vishwanathan,
vice-president (operations) at NIIT SmartServe, the cost incurred to ferry one
person per month is between Rs 3,000 and Rs 5,000. SmartServe has 30 vehicles.
According to Sumir Anand, vice-president (facilities management and business
continuity planning) at EXL Services, the monthly expense per cab ranges from Rs
32,000 to Rs 48,000. On an average, to ferry about 1,200 persons in a cab that
can seat eight persons, a BPO center would require at least 150 cabs each day.
This translates into employment for at least—if not more—an equal number of
drivers (EXL has two drivers per cab). Multiply this number with the number of
BPO vendors in the country and we are already talking of a healthy employment
figure.
If a female employee is the first person to be picked up or the last person
to be dropped, there’s also an armed guard in the cab. These guards stay in
touch over walkie-talkies to counterparts at the BPO site, who keep track of the
vehicle’s movement. This translates into employment for security personnel.
Besides the guards in the cabs, there are at least six to eight security
personnel, at any point of time, manning shifts of eight to 12 hours a day. EXL
Service has 65 security personnel at its three sites in Noida.
All BPO companies provide food in-house. Some like NIIT SmartServe serve food
free of cost, while others like EXL Service subsidize the food by 50%. According
to estimates, the average spend per person per day on food comes to about Rs
60-70 and most BPO companies have arrangements for three meals a day. At every
meal, there’s a team of at least four to five persons who serve the food. This
number is closer to 10 when dinner is served—as nearly 50% of BPO employees
are on the site at that time.
Another upcoming segment is lodging—guest houses and apartments, for
employees. In most cases, employees share apartments. However, in case there’re
outstation employees with families, they can opt for taking up an entire
apartment. This segment has, so far, not witnessed as much growth as the other
three, but an increasing number of BPO players are now contemplating setting up
guest houses or leasing apartments.
NK
