Domestic Market and cost structure of

BPO in India and hahaha

 Indian Domestic BPO was expected to be USD
1.8Bn industry in FY2008 and is expected to grow at
a CAGR of 35% for the next 4 years becoming a
USD 6Bn industry in FY2012
 With the emergence of several large, proven and
well-capitalized vendors, outsourcing will continue its
momentum. It is expected that 3rd party vendors’
market share will increase to 30% in FY2012
 Customer care and Sales and Marketing are the two
largest business segments and accounts for over
78% of the overall market in FY2008
 Banking, Insurance and Telecom are the key
industry verticals and account for 68% of the overall
market in FY2008;
 Retail ,Media, Entertainment and Healthcare are the
emerging verticalsto leverage outsourcing in near
future
Indian domestic economy (growth)

 Banking sector will grow at 19% CAGR

 Insurance sector will grow at 12% CAGR
 Retail at 35% CAGR
 Telecom at 70% CAGR
Rise of consumerism in India
 The shape of the income pyramid of consumers will undergo
significant change in the next 20 years.
 Expenditure on health, education, transportation and
communication will soar.

Impact on business
As consumer income rises, they become more discerning.
 Product Differentiation and Quality of Service will become
critical success factors.
� Customer support, CRM, Loyalty Marketing will gain
prominence as key business enablers
Domestic BPO Revenue
 With the emergence of several large and
proven 3rd party BPO players, their market
share will increase from the current 18% to
30% by 2012.
 Top 12 players account for 75% of the 3rd
party market share
Key reasons for rapid increase in market
share of 3rd party players

 With most underlying customer industries growing at between

20-70% per annum, there is an increasing realization to focus
on the core business while partnering with 3rd party vendors to
tackle the non-core operations
 Several large 3rd party players with proven delivery experience,
robust an infrastructure and a referenceable client base.
 High attrition rates of between 55-65% per annum is putting an
enormous strain on management bandwidth of organizations
running their captive operations
SERVICE LINES
 Customer care will grow at  Key 3rd party player are Aegis,
CAGR 110 HTMT,IBM, InfoVision, Omnia,
Mphasis, Sparsh
 Sales & marketing at 45%  Andromeda,Direm,InfoVision,
CAGR Kankei, Omnia
 HR at 82% CAGR  Cross-Domain,Hewitt,
MaFoi,Teamlease
 Bill Junction, Venture Infotek
 F&A at 16%
 Others at 19%
 Dialnet Communications
Growth in verticals

 BPO opportunity from Banking sector is currently about USD

380Mn
 Expected to grow at a CAGR of 38% to USD 1.5Bn in FY2012
 BPO opportunity from Insurance sector is currently about USD
190Mn
 Expected to grow at a CAGR of 20% to USD 390Mn in FY2012
 BPO opportunity from Telecom sector is currently about USD
660Mn
 Expected to grow at a CAGR of 31% to USD 1.9Bn in FY2012
 BPO opportunity from Travel sector is
currently about USD 76Mn
 Expected to grow at a CAGR of 40% to USD
210Mn in FY2012
CHANGING COST STRUCTURE OF
DOMESTIC BPOs (% OF REVENUES)
Key Elements of Cost Structure of
Domestic BPO Players

 Personnel costs account for nearly 46% of

revenues currently. Wage costs have been
rising between 10-12% annually in all major
cities of India.
 However with almost all domestic BPOs now
moving to tier 2/3 cities, both wage costs and
attrition are likely to temper. Salaries in tier
2/3 cities are 60-70% of tier 1 cities and
attrition levels are less than 15% per annum.
 Telecom & Connectivity costs account for
8% of revenues. Over the last few years,
telecom costs have been steadily decreasing
 Rent & Utilities account for 8% of revenues
and are increasing between 4-7% per annum
 Sales & Marketing costs account for
between 8% of revenues currently.
 General& Administrative costs account for
10% of revenues currently.

 Withmost top tier Domestic BPOs growing

between 75-100% per annum over the last few
years, costs have spiraled. With increase in the
scale of operations and infusion of professional
management team, operating expenses will tend
to decline
 Depreciation accounts for about 6% of
revenues currently. With over 50% growth
projected by most companies, a high degree
of capex would need to be maintained,
keeping it around the same level over the
next few years.
 Tax – A full corporate tax rate of 33.99% is
applicable to the Indian domestic BPO
 Net margin domestic BPO
 Tighter cost control by moving to tier 2/3
cities, leveraging economies of scale and a
modest increase in price will boost margins
for domestic BPOs, steady state net income
margins of 12% is expected for most
established players by FY12
The key difference is Net Margin stems from tax exemption granted Global BPOs in
India u/s 10A of STPI Act. This exemption was proposed to be withdrawn in April
2009
Despite pricing levels in domestic BPO
being significantly lower than its
international
counterpart, the EBITDA margins are
equally attractive.
key criteria for vendor selection

 Existing client credentials for providing voice and non-voice

BPO services

 Financial and managerial capability of service provider to sustain and

grow in line with increasing demand

 Cost and quality efficiency

 Existing relationship with service provider

 Buyers will look to outsource non-core
process in large volume
 Domestic service providers will move into tier
2, 3cities to get additional resources at lower
cost.
Critical success factors of domestic
supplier

 The speed of setting up and training employees

within service provider organizations
 With 15 major languages spoken in various parts of
India, having multi-lingual capabilities becomes
necessary to serve the domestic market
 Referenceable client base
 Strong Management Team
 Scale
 Capital and Infrastructure capability