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Industry Analysis |
India could well become the world's BPO capital in the next three years. This is what makes the outsourcing to India an irreversible process.
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BPO- Overview of the Indian Industry.
The Indian BPO Industry is already worth $5.3 billion.
It is growing at almost 60% a year- the kind of growth
Indian IT services industry used to clock in the early
1990s. In fact after the tech slump, almost all big Indian
IT services companies have forayed into BPO to maintain
their growth rates. Quite a few of the promising start-ups
of last year have attained critical mass. Meanwhile, some
of the biggest global players have started setting up
their own operations in India. At the same time, the industry
has begun to attract a bit of adverse attention-several
US lawmakers have started seeing it as a threat as too
many American jobs are shifting to India.
At current growth rates, the 5.3 billion BPO industry
is fast catching up with the much acclaimed IT industry.
According to Nasscom-Mckinsey study, the IT-enabled services
sector was due to employ 1.1 million people and earn $1
billion by 2008. That was soon revised to $24 billion.
The rapid growth is throwing up winners and the losers
who did nearly everything right and are now set to take
on a larger share of the BPO pie even as they gear to
meet competition from the world's largest BPO corporations
which are eyeing India. About 8-10 Indian start-ups are
set to clock $100 million in revenues in the next 18-14
months, purely on the strength of their current contracts.
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Major Worries for the BPO Industry
Reckless Start-ups- a vast majority of
the 310 start-ups are headed for a dead-end (according
to Nasscom). Their capacity utilization is less than one
of the three shifts. Many of these companies that converted
their empty basements and warehouses into BPO units or
firms with $10 million-20 million VC funds that ran out
of cash without creating anything more than white elephants.
They have driven down prices to grab business, but have
failed to deliver. They were always clueless about people,
processes or technologies- the three key elements of the
BPO business.
Poor Infrastructure- the industry has more to worry about than just reckless start-ups. Primary among those is infrastructure. While telecom networks are state of the art, getting a connection still takes up to three months. Unreliable power supply is forcing units to create their own back-ups. Roads are bad and airports are in dire need of repairs and upgrades.
High Attrition- another major problem is the high attrition and growth aspirations of the workforce. At least 60,000 of the 171,000 workforce change jobs every year. About 80% of them look for better leaders. Team leaders want to upgrade to supervisors, quality professionals or operations heads. The HR problem threatens to soon become grave. Good agents are becoming hard to find and with tardy infrastructure, big moves to the much talked about smaller towns will take longer. This means costs will rise making it difficult for small VC-funded companies to survive.
Attrition rates (%)
US - 42%
Australia - 29%
Europe - 24%
India - 18%
Global Average - 24%
(Source-Times News New York)
Other Preferred Destinations- the success of off shoring to India has woken up other English-speaking countries such as South Africa, Australia, New Zealand and Canada. All these countries have a large pool of professionals and companies have already begun to set up their centers. But the biggest threat to the Indian Industry is from China, which has made English mandatory in schools and colleges. In another four to five yeas, China could pose a challenge in non-voice businesses, if not voice based operations.
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How to tackle these problems
The only way to tackle such threats is to continue to
do the job as best as expected and to re-engineer client's
processes thereby adding value. The ongoing shakeout in
the industry will only make strong players stronger and
weak players even weaker. India could well become the
world's BPO capital in the next three years. And the effort
must be to ensure that Indian BPO companies get business
not just for the cost advantage, but also because the
job is best done here.
Downloadable Report - Market Research (.pdf)
Downloadable Report - Industry Analysis (.pdf)
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