BPOs in INDIA

INTRODUCTION TO BPO::

Globally, competitive pressure is forcing organizations to look for

ways to manage growth more cost-effectively and efficiently,
minimizing infrastructure and employees. As a result, organizations
worldwide are trying to outsource those areas of business that can be
effectively and efficiently managed outside the organization. By
doing so, they gain a competitive advantage in terms of cost and
productivity. Today, BPO addresses the enterprise's fundamental
challenge: How does its management take a process important to the
company's operation and make it more effective while simultaneously
lowering the cost? BPO enables companies to reduce cost and:

 Start up operations with greater speed

 Ensure uniformity of management practices across the globe
 Tap into alternative sources of revenue
 Have more consistent training practices.

There are three distinct process areas in an organization’s cost

structure that can be outsourced, as illustrated in Figure 2. They are:

 Business administration
 Supply chain management,
 and Customer service, sales and marketing.
 Each of these can be further broken down in to sub-processes
and functions. The costs typically account for six-to-seven percent of
revenue. Service providers are offering to reduce the cost and improve
the service levels of key processes such as finance, accounting,
human resources, and purchasing.

MARKET SIZE

BPO is big business. According to the Gartner Group, the

worldwide BPO market is expected to grow from a 2002 figure of
$110 billion to $122 billion in 2003 – a growth of 10.5 percent. India
has emerged as a key player in the BPO market. According to
NASSCOM – the revenue from BPO services and related services
like call centers grew by 59 percent to $2.3 billion in the financial
year 2002-2003. NASSCOM estimates that the revenue from BPO
and related services will grow 54 percent in the year up to March 31,
2004, to touch $3.6 billion. McKinsey & Co. predicts the global
market for IT-enabled services to be over $140 billion by 2008.
NATURE OF OUTSOURCING

Companies seeking to outsource their business processes to

external parties need to evaluate them thoroughly before they begin
operations – as most BPO activities tend to have maximum benefit to
the outsourcing organization when they have a degree of continuity.
This continuity is derived from long-term partnerships. The service
provider goes through a learning curve before efficiencies and
effectiveness in managing and implementing the set of processes set
in. Unlike other outsourced activities such as application development
or system integration that tend to be project based and relatively short
term, BPO is a long-term undertaking with contracts lasting several
years. As Figure 3 below shows, 63 percent of BPO contracts are for
5-10 years and another 25 percent for three-to-five years. This is
mainly because of the high cost of switching between vendors. In
addition, renewal rates are high. According to vendor responses to the
Gartner survey, nearly 90 percent of contracts are renewed, with
only a 10 percent rate of non-renewals. Non-renewals, more often
than not, are due to a change in client strategy or management
changes.

THE OUTSOURCING DESTINATION

INDIA - A BACKGROUND

For almost two decades, the Indian software industry has been
successfully providing software and support for a number of Fortune
500 companies. These solutions have helped companies provide better
and more proactive support to their own customers. Factors that
contributed towards making software outsourcing to India and Indian
companies a success, are today contributing to the successful
outsourcing of business processes by organizations to partners in
India. One of the key advantages that India has is that for well over
half a century it has been a stable, secular democracy. As such there
have not been major political, economic or social upheavals.
Successive Governments of India have ensured stable economic
growth. Today, India has the institutions and infrastructure in place
that makes it comparable to any developed first world economy.
Over the last decade, the central government as well as state
governments have geared themselves up to do business. This has
resulted in the simplification of many rules and regulations, the
reduction

INDIA – THE ECONOMIC SCENARIO

Over the last decade, the average growth rate of India’s GDP
has been five percent to seven percent, making it one of the better
performers in the world economy. Inflation has been relatively low
and the purchasing power parity in India relatively high (the fourth
largest in the world). It is a member of the elite space club – a nation
that has built and launched its own satellites – and devotes
considerable resources to technical and scientific research. India has
the twelfth largest telecom network in the world.

INDIA – THE PERSONNEL ADVANTAGE

Probably the greatest contributing factor to India’s continued

success first in information technology (IT), and now in information
technology enabled services (ITES), is the large pool of trained
English- speaking people. As a culture, Indians value education and
qualifications. As a result, there are a large number of graduates and
postgraduates _ instructed their entire lives in English. Each year,
approximately 2.1 million graduates and 300,000 postgraduates
emerge from the Indian educational system. Few graduates go abroad
to pursue further education or better prospects, for those who stay
behind, a career in a IT or an ITES affords them a much better
standard of living than local jobs. A postgraduate, for example
commonly starts at a salary of around Rs. 7,500 per month, which
approximates to US $150. A comfortable salary in India is considered
to be around Rs.10,000 which translates to approximately US $222
per month. And so, it is no surprise that because the US dollar goes
further in India that companies worldwide can drastically cut costs
without compromising quality.

INDIA – THE COST ADVANTAGE

A leading international airline company, which carries out

multiple back office functions from India, has scaled up its operations
to over 1,500 people and is said to be saving close to US$30m per
year in staff costs over and above the approved productivity levels.
AMEX’s center in India provides payable and reconciliation services
to all its businesses globally. A leading financial services company
has scaled up to 12,000 employees and provides the gamut of services
from data entry to helpdesk support. It is the quality of personnel,
combined with the cost effectiveness of operations that is leading to a
migration of key processes to India.
INDIA – THE LOCATION ADVANTAGE

In a recent McKinsey analysis, India came out as the top

location of choice for companies wishing to outsource their business
processes. The study revealed that companies looking to outsource
their business processes usually consider two main parameters:
People attractiveness – size of talent pool, salaries, quality, and
knowledge and comfort in English Location attractiveness –
infrastructure availability, bandwidth availability, electricity
availability, political stability, government policies, and time zone
differences.

INDIA – BENEFITS OF OUTSOURCING

The growth in business processes outsourced to partners in India

has been phenomenal. Scores of companies based in the United States
and in the European Union have benefited by outsourcing a large part
of their business processes to partners in India. These include both
third party vendors and captive units. NASSCOM, the premier
industry association of Indian IT companies, classifies Indian business
process outsourcing services under IT enabled services (services
delivered over telecom networks or Internet); and characterizes it as
the fastest-growing segment of Indian IT exports over the past two
years. As the following table shows, Indian IT-enabled services _
after 64 percent growth in FY01 (year to March) _ are expected to
grow at a similar rate in FY02. This compares with just 22 percent
growths in software services and a mere five percent in R&D
outsourcing services during the year.

CONCLUSION

BPO is one of today’s key management tools. Companies

across the globe have realized the importance of outsourcing their
non-core functions whether to reduce cost or support expansion.
India continues to be a preferred destination for outsourcing for the
reasons captured in this paper. These advantages, coupled with Patni’s
proven approach and integrated service delivery model, enable
corporations to derive significant value from its outsourcing initiative.
This, in turn, frees organizations to focus on their core competencies
and pursue strategic goals in a dynamic business environment.