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Business process outsourcing in India

From Wikipedia, the free encyclopedia

An Indian call center

The business process outsourcing industry in India refers to the business process outsourcing services in
the outsourcing industry in India, catering mainly to Western operations of multinational corporations (MNCs).

As of 2008, around 0.7 million people work in outsourcing sector[1] (less than 0.1% of Indians). Annual revenues
are around $11 billion,[1] around 1% of GDP. Around 2.5 million people graduate in India every year. Wages are
rising by 10-15 percent as a result of skill shortage.[1]

Contents
[hide]

• 1 History

o 1.1 Airlines

o 1.2 Amex

o 1.3 General Electric

o 1.4 Third party BPO's

o 1.5 Entry of IT majors

o 1.6 Emergence of Rural BPOs

o 1.7 Effect of global meltdown on

Indian BPOs
o 1.8 Challenges to outsourcing

services in India

• 2 Size of industry

• 3 From a PricewaterhouseCoopers survey

• 4 Leading BPO-ITes cities in India

• 5 See also

• 6 References

• 7 Further reading

• 8 External links

[edit]History

[edit]Airlines

In the early 1980s several European airlines started using Delhi as a base for back office operations, British
Airways being one among them. The BA captive was finally spun off as a separate organisation called WNS
Global Services in 2002.

[edit]Amex

In the second half of the 1980s, American Express consolidated its JAPAC (Japan and Asia Pacific) back
office operations into New Delhi and NCR region[2]. This center was headed by Raman Roy, and has been a
source of several leading names in the Indian BPO Industry.

[edit]General Electric
In the 1990s Jack Welch was influenced by K.P. Singh, (a Delhi based realtor) to look at Gurgaon in the NCR
region as a base for back office operations. Pramod Bhasin, the India head of G.E. hired Raman Roy and
several of his management from American Express to start this enterprise called GECIS (GE Capital
International Services). Raman for the first time tried out voice operations out of India, the India operations also
was the Beta site for GE Six sigmaenterprise. The results made GE ramp up their Indian presence and look at
other locations. In 2004 GECIS was spun off as a separate legal entity by GE, called Genpact. GE has retained
a 40% stake and sold a 60% stake for $500 million to two equity companies, Oak Hill Capital
Partners and General Atlantic Partners.

[edit]Third party BPO's


Until G.E most of the work was being done by "captives"- a term used for in house work being done for the
parent organisation. In 2000 Raman Roy and some team members from GECIS quit , and with VC funding from
Chrysalis Capital started Spectramind. At the same time an organisation called EXL started
in Noida and Efunds started in Mumbai and Gurgaon, and Daksh in Gurgaon. However, recently most of the
Indian BPO's even smaller and mid-sized ones are actually setting-up their onshore presence. Most of the
serious players are actually improving the outsourced business processes by leveraging on years of
experience and now some of them are directly competing with their own older clientbase by marking this
transition to KPO 's.

[edit]Entry of IT majors
In 2002 Spectramind was bought by software major Wipro, and BPO by then had become mainstream like the
IT Industry in India. The team that had set up Spectramind went on to start Quatrro in 2006, a BPO specialising
in high end BPO/KPO services. By 2002 all major Indian software organizations were into BPO,
including Infosys (Progeon), Inforlinx, HCL, Satyam (Nipuna) and Patni. By 2003 Daksh was bought out by
IBM, and later in 2006 MphasiS was acquired byEDS. Even international 3rd party BPO players
like Convergys and Sitel had set up shop in India, swelling the BPO movement to India. Then service arms of
organizations like Accenture, IBM, Hewlett Packard, Dell also set up shop in India.

[edit]Emergence of Rural BPOs


Booming India Inc has led to skyrocketing real estate and infrastructure costs in Tier-1 cities. BPO industry has
thrived all these years because of its ability to deliver services at a low cost. Increasing infrastructure costs, real
estate costs, and salaries have raised BPO costs significantly and as a result Indian BPOs in Tier-1 cities are
looking at Tier-2 and Tier-3 cities for operation.

Few entrepreneurs who had a vision of bringing the rural India into the mainstream of knowledge
economy have found an opportunity here - setting Rural BPOs. The transformation of rural India started with
the emergence of these Rural BPOs. The major hurdles that these BPOs faced is quality man power. As a
result these rural BPOs have remained targeting low end jobs like data entry.[citation needed]

[edit]Effect of global meltdown on Indian BPOs


American financial meltdown has begun to take its toll on India's IT and outsourcing business.[1]

[edit]Challenges to outsourcing services in India


Many analysts believe that the growth of India outsourcing sector is widely optimistic and it will slow down in
future. Both IT and BPO sector is extremely dependent in USA and if the US dollar depreciates can adversely
impact the entire sector. Additionally countries like China, Mexico and Vietnam are also expanding outsourcing
operations and often providing cheaper services.

[edit]Size of industry
The industry has been growing rapidly. It grew at a rate of 38% over 2005. For the FY06 financial year the
projections is of US$7.2 billion worth of services provided by this industry. The base in terms of headcount
being roughly 400,000 people directly employed in this Industry. The global BPO Industry is estimated to be
worth 120-150 billion dollars, of this the offshore BPO is estimated to be some US$11.4 billion. India thus has
some 5-6% share of the total Industry, but a commanding 63% share of the offshore component. The U.S $7.2
billion also represents some 20% of the IT and BPO Industry which is in total expected to have revenues worth
US$36 billion for 2006. The headcount at 400,000 is some 40% of the approximate one million workers
estimated to be directly employes in the IT and BPO Sector.

The related Industry dependent on this are Catering, BPO training and recruitment, transport vendors, (home
pick up and drops for night shifts being the norm in the industry). Security agencies, Facilities management
companies.

[edit]From a PricewaterhouseCoopers survey

Table 1: Global BPO Market by Industry[3]

Industry Percentage (%)

Information Technology 43

Financial Services 17

Communication (Telecom) 16

Consumer Goods/ Services 15

Manufacturing 9

Table 2: Global BPO Market by Geography[3]

Country Percentage (%)

United States 59

Europe 27
Asia-Pacific 9

Rest of the World 5

Table 3: Size of Global Outsourcing Market[3]

Year Size (USD Bn)

2000 119

2005 234

2008 (est.) 310

Table 4: Size and Growth of BPO in India[3]

Year Size (US$ Bn) Growth Rate (%)

2003 2.8 59

2004 3.9 45.3

2005 5.7 44.4

Currently the Indian BPO Industry employs in excess of 245,100 people and another 94,500 jobs are expected
to be added during the current financial year (2005–2006)

Table 5: Call Center Employee cost[3]


Country Cost (USD/yr)

USA 19,000

Australia 17,000

India 9,500

Philippines 9,050

Nearly 75% of US and European multinational companies now use outsourcing or shared services to support
their financial functions. 72% of European multinational companies have outsourced financial functions over the
past two years.

Additionally, 71% of European companies and 78% US companies plan to use these services in the next 12–
24 months. Overall, 29% of US and European companies expect to increase their use of outsourcing of
financial functions, with spending expected to be nearly 16% higher than current levels.

Growth in this sector will get a further impetus as Indian BPO companies have robust security practices and
emphasis is laid in developing trust with clients on this score. While earlier there were varying quality standards
on this aspect, today there is focus on standardization of security, such as data and IP security.

[edit]Leading BPO-ITes cities in India


Bangalore, Chennai, Hyderabad, Kolkata, NCR, Pune, Mumbai and Ahmedabad are Tier I cities that are
leading IT cities in India.

With rising infrastructure costs in these cities, many BPO's are shifting operations to Tier II cities
like Nashik, Sangli, Aurangabad (Maharashtra), Mangalore, Mysore, Hubli-Dharwad, Belgaum, Coimbatore, Ma
durai, Hosur, Nagpur, Kochi,Trivandrum, Chandigarh, Mohali, Panchkula, Ahmedabad, Bhubaneshwar, Jaipur,
Vishakapatnam and Lucknow

Tier II cities offer lower business process overhead compared to Tier I cities, but have a less reliable
infrastructure system which may hamper dedicated operations. The Government of India in partnership with
private infrastructure corporations is working on bringing all around development and providing robust
infrastructure all over the nation.