Business Process Management Journal

Emerald Article: Business process outsourcing: a strategic review on

Indian perspective
Aruna Kumar Panda

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To cite this document: Aruna Kumar Panda, (2012),"Business process outsourcing: a strategic review on Indian perspective",
Business Process Management Journal, Vol. 18 Iss: 6 pp. 876 - 897
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BPMJ
18,6 Business process outsourcing:
a strategic review on Indian
perspective
876
Aruna Kumar Panda
Department of Industrial Relations & Personnel Management (IR&PM),
Berhampur University, Berhampur, India

Abstract
Purpose – The aim of this paper is to extend a conceptual understanding of business process
outsourcing (BPO) and its prevailing practices in the background of the post-liberalized economic
scenario of India. Efforts have also been made to discuss the major work verticals of Indian ITES-BPO
industry, which further reveals the fact of its domain expertise and in-time delivery of services in a
pre-determined standard with least possible cost that has made India a BPO hub. The later part of the
study deals with an empirical SWOT-analysis that highlights the key factors that have significant
bearing to the very flourishment of this sunshine industry.
Design/methodology/approach – The data collected for the analysis are secondary in nature and
include various journals, periodicals, survey reports and on-line business reports/news. The
techniques like trend analysis and SWOT analysis in particular have been implemented for the
purpose of study.
Findings – The paper found that in addition to the growth of traditional industries, patronization of
this emerging sector is also a high necessity, looking at its socio-economic contribution to the society
on one hand and considerable amount of employment creation and income generation capabilities for
the bright mass of the country that restrict “brain drain”, on the other hand.
Originality/value – The paper describes, analyses and critiques the outsourcing industry in India
with reference to a core theory base. It is expected to be helpful in stimulating the analytical mind of
the researchers and industry practitioner of the area for scientific decision making and furthering the
research on this particular aspect of business.
Keywords Cost effective outsourcing models, BPO hub, Domain expertise, Job shifting,
Business risk mitigation, Outsourcing, India
Paper type Research paper

Business Process Management
Journal
Vol. 18 No. 6, 2012
pp. 876-897
q Emerald Group Publishing Limited
1463-7154
DOI 10.1108/14637151211283339
1. Introduction
In recent years, business process outsourcing (BPO) has evolved as a tremendous
business practice throughout the globe that happens to be one of the largest growth
areas in outsourcing market (TPI, 2007). Popularly, it deals with outsourcing of the
non-core, non-niche, ancillary business activities of a firm from a third party vendor for a
fee who has domain expertise and good reputation for in-time delivery of services at a
pre-determined standard (Quinn and Hilmer, 1994; Halvey and Melby, 1996; Quinn,
1999; Dayasindhu, 2004; Rouse and Corbitt, 2004; Linder, 2004). Additionally it involves
outsourcing of the infrastructure supporting the business processes, including its IT
The author expresses his sincere gratitude to the Chief Editor and the respected reviewers of the
journal for their kind guidance, meaningful review comments and constructive suggestions at
different phases of drafting this paper.
infrastructure, apart from IT-enabled business processes (Loh and Venkatraman, 1992; Business process
Edwards, 2004; Tornbohm and Andrault, 2005; Mani et al., 2006). Authors like outsourcing
Davenport and Short (1990) and Davenport and Davenport (1993) explained the business
process as a set of logically related tasks performed to achieve definite business
outcomes and that describes “how” the work is done rather than “what” work to be done.
It was as early as 1980s, when a couple of leading Western multinational corporations
(MNCs) started outsourcing their business activities from a low cost structure country 877
like India with the prime motto to encash the “competitive cost advantages” (Raul, 2004;
The Hindu, 2005; Mehta et al., 2006). Ideally, they established their “captives” in tier-I
Indian cities having sound infrastructural facilities and conducive business
environment with strategically favorable policy measures of the both the central and
State Governments that were essential to cater their business needs. “Delhi”, the capital,
was infact considered to be their prime destination till 1990 (Table I).
The period of 1990s was however much enchanting for Indian industries. The
concept of liberalization, privatisation and globalization (LPG) was then gradually
gaining its momentum, world wide, endorsing a paradigm shift in the world business
activities and India being no exception (Mehra, 2005). Significant liberalized policy
measures were adopted by the Union Government during this era. Most trade
restrictions were almost uprooted and rigid policies were made flexible to a greater
extent to extend a red carpet welcome for the private sector participation in
industrialization. The basic objective behind such a liberal attitude of the government
was nothing but to have a sharp check on the year long, massive erosion of profit in
major sectors operating under its direct ownership and the growing inflation rates of the
country. However, even then the government never knew that all these revitalized
activities were waiting to reap it a very sweet result in future, in the form of an emerging
highly-paid outsourcing industry called BPO.
During the late 1990s, the concept of technology-driven LPG evolved. Information
technology, telecommunication and internet altogether almost changed the existing
business practices and work timings. Technology helped the business to get access and
use necessary information and services from several geographical locations of the globe
along with the least possible cost (Bettis and Hitt, 1995; Picot et al., 1997; Sampler, 1998;
Portor, 2001). With the advent of skilled labour and cheap global communication, many
MNCs then opted to outsource their supporting activities as a major cost-cutting and
quality enhancing strategy (Globorman and Vining, 2006). Now that India is a “low cost
structure” country with manpower expertise in most non-niche, supporting activities
like customer relationship management (CRM), human resource management,
accounting, finance, information management, etc. many Western companies made
up their mind to have India as their prime destination. Infact, this outsourcing was

Year of entrance Company Captive units Location

Early 1980s British Airways BA captive Delhi

Late 1980s American Express Japan and Asia Pacific ( JAPAC) New Delhi
During 1990s General Electrics GECIS Gurgaon (NCR region) Table I.
Back office activities
Source: The Economic Times Intelligent Group (2002), Das (2004), De (2004), Pricewaterhouse Coopers of MNCs since 1980s
(2005) and Wikipedia (2007) in India
BPMJ nothing but a compelling factor for major MNCs. The reason was an acute
18,6 synchronization of business opportunities at their mother-land due to the market
saturation. Of late, they realized that focusing on every aspect of business is not
strategically sound. Rather the emerging concept of concentrating on core aspects of
business what they can do best and outsourcing the rest non-core activities from a low
cost structure country like India, “who has the domain expertise and can deliver the best
878 with the least possible cost”, become much popular (Raul, 2004). This newer business
model of outsourcing helped them immensely to achieve better synergy in their
organizational operation with the major objectives being efficiency improvement,
cost reduction and value maximization of share holders (Hayes et al., 2000; Kelly and
Poole, 2006; Sople, 2009). Till the late 1990s, low end jobs with semi-skilled, low-cost
work force like voice based outsourcing including CRM, data base management (data
entry, data processing, data conversion, etc.) were popular for outsourcing. However,
since 2000, Indian IT-enabled sectors entered into more sophisticated areas of operations
with their high-skilled, top paying talent teams thereby extending the services including
research and consultancy in finance and accounts, logistics and insurance claim
processing, engineering and pharmaceuticals sectors, medical transcriptions, animation
and chip designing, etc. and literally redefined the concept of outsourcing for the
high-end technical, managerial and strategic activities that were often regarded as safe
from overseas competition from an American perspective (Saunders et al., 1997; Mitra,
2006). Even the recent legal process outsourcing (LPO) concept has been no exception to
it (Babu and Jayabal, 2004; Karnik, 2005; Arora, 2005; Pai, 2006). A structural format of
major dimensions of Indian ITES – BPOs including a list of selected companies with
major domain expertise can be shown in Figure 1 and Table II.
Sources reveal the fact that current service providers like “Kervey” and “Heartland”
have major expertise in medical transcription, transaction and claim processing
(Raul, 2004); whereas, “24/7 Customer”, “Genpact”, etc. have major domain skills in
logistics, technology, financial and telecom services, content development, procurement,
etc. VSNL provides connectivity to many geographical locations throughout the globe
(VSNL Annual Report, 2006-2007). Moreover, during the year 2003-2004, the “captives”

CRM Human Banking Knowledge

Technical
& Resource & Administration Services
Services
Customer Care Management Finance (Transcription)

• Handling inbound/outbound Calls • Billing & Accounting transactions

• Engineering Design,
• Data base Marketing • Tax consultancy & Risk
• Animation
• Customer Analysis Management
• Financial Analysis & Reporting • Network Management
• Telemarketing

• Recruiting, Training & Staffing • Asset & Document

• Medical & Legal
• Pay roll & Record Management Management
Transcription
• Benefit Administration • Tax & Claim processing
• Other Specialized Services.
Figure 1. • Documentary management

Major dimensions of Source: Sharma (2004), Nag (2005); www.etintelligence.com/etig_ root/etknowledgeseries/

Indian ITES-BPO
bpo/pdf/2.pdf
 Business process
Year of
inception MNCs BPOs Work verticals outsourcing
2000 EXL Service (a third Insurance, banking, accounting and consumer
party pure play BPO goods retail, etc.
service provider)
Deluxe e-funds Corporation Finance and accounting, operation services, 879
Corporation (now e-funds contract centers, etc.
International)
2002 Wipro Wipro Spectra Mind CRM, accounting, transaction processing
Infosis Progeon (now Infosis CRM, finance and accounting, HR services,
BPO) insurance claim processing, KPO, LPO, etc.
Satyam Nipuna (now Nipuna Accounting and financial back office, customer
Services Ltd) contact services, claims administration, imaging
solution, document management, payroll/HR
processes, procurement and purchase support,
loans and mortgage processing, etc.
British WNS Global Industry-vertical airline, travel and transportation,
Airways insurance, service ltd, retail financial services,
healthcare, telecom and market research, etc.
2003 IBM Daksh (now Daksh e- Inbound/outbound calls, e-mail support, outbound
Services Pvt Ltd) collection and telemarketing support, real-time
chart, knowledge management, etc.
ICICI Bank ICICI One Source Transaction processing services for the financial
services sector including financial services, retail, Table II.
telecom and entertainment, etc. Outsourcing activities
through the BPOs since
Source: NASSCOM ITES Directory (2002), Das (2004) and Wikipedia (2007) 2000

of major MNCs contributed around 49 percent of the revenue though their number was
less than 15 percent of the active BPOs in India. The contribution of GE Capital
International Services (GECIS) was highest followed by Dell, American Express,
e-Serve, Scope (standard chartered captive), HSBC and JP Morgan Chase (De, 2004). The
list is long enough and every day some thing new comes under the tag of this garland.

2. BPO in India: a status check

The BPO industry in India has been on a growing path since the early twenty-first
century, both in term of employment creation and revenue generation. During year
2001-2002, the domestic revenue generated by this industry was almost around
1.6 billion $US, which reached at 5.58 billion $US during the year 2004-2005,
registering a growth of about 3.5 times (Table III). The sector almost experienced a
very high rate of “eight-fold” growth in terms of creating employment avenues for
348,000 professionals, both semi-skilled and skilled, till 2005, in comparison to
42,000 professionals in early 2001-2002. The tremendous growth of the industry in
2004-2005 was possible due to the availability of lower telecom cost and high-skilled
manpower who were well versed with US and UK assent. As per record, there were
almost 285 key players operating in this sector till 2003-2004, which rose significantly
to 410 during March 2005 (Yojana, 2005b). The size of global outsourcing market was
estimated to be 234 billion $US where as India’s share was 5.7 billion $US, almost
2.43 percentage of the total (Pricewaterhouse Coopers, 2005).
BPMJ
Revenue size (in billion US$) Employee strength (in no.)
18,6 Financial year (trend indices) (trend indices)

2001-2002 1.6 (100) 42,000 (100)

2002-2003 2.8 (175) 171,000 (407)
2003-2004 3.9 (243) 245,000 (583)
880 2004-2005 5.8 (362) 348,000 (829)
2005-2006 7.4 (463) 395,000 (940)
2006-2007 8.3 (519) 415,000 (988)
2007-2008 8.4 (525) 553,000 (1,317)
Table III. Note: Trend indices have been compiled taking 2001-2002 as base year
Status of ITES-BPOs Source: Pricewaterhouse Coopers (2005), NASSCOM-McKinsey Report (2005); www.rediff.com/
in India money/2007/jul/12bpo1.htm

Since then, many Indian BPOs and third party players actively engaged in this high
profile sector and worked in parallel with the major Western MNCs that made it a key
investment market in the country. From the year 2001-2002 to 2007-2008, the growth
trend of the industry remained upward ensuring an overall employment opportunity
for more than 553,000 professionals in the market (Figure 2). Further the
NASSCOM-Everest Joint Report on Indian BPO industry revealed the fact that in
case of indirect employment the industry was able to engage more than 7 lakh people
across 25 countries and accounted for about 40 per cent of the 26-29 billion $US global
BPO offshore market till 2008 (The Hindu Business Line, 2008).
During the year 2003-2004, the industry experienced a higher growth rate of about
54 percent with an estimated revenue generation of 3.9 billion $US (Iqbal, 2005). Since
then, the growth rate of the BOP industry has not been much significant though the
size of export revenue has already been at its peak with around 10.5-11 billion $US for
the financial year (FY) 2008 (Figure 3). The industry grew by the least of 33.5 percent in
FY-2007 and according to NASSCOM this segment revenue should be around
30 percent in FY 2008 (www.rediff.com/money/2007/jul/12bpo1.htm).
The domestic ITES – BPO industry of India was also not on a back gear. Here the
revenue size grew up to 12 times since 2001-2002, registering an amount of 1.2 billion
$US in 2006-2007. Figure 4 shows it significantly.
A Growth trend of Indian ITES - BPOs
1,400
1,200
Trend Indices

1,000
800
600
400
200
0
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
Financial Year
Figure 2.
A growth trend of Indian Revenue Size ($ US Billion) Employee Strength (in No.)
ITES – BPOs
Source: Table III
 54
Business process
60
outsourcing
45 44
50
38
Annual Growth

40 33.5
Rate (in %)

30
30 881
20

10

0
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Figure 3.
FinancialYear Annual growth rate of
Indian ITES – BPO
Note: Growth rates of years were estimated in comparison to their previous years segment
Source: Iqbal (2005), Karnik (2005); www.rediff.com/money/2007/jul/12bpo1.htm

1.2

1.2 0.9

1
0.6
Value in $ US
(In Billions)

0.8
0.6 0.3
0.2
0.4 0.1

0.2
0 Figure 4.
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 Growing domestic
Financial Years under Study segment of Indian
ITES – BPO market
Source: Karnik (2005); www.rediff.com/money/2007/jul/12bpo1.htm

The Indian IT/ITES – BPO industry has been leveraging its brand with outsourcing
the non-niche activities to most companies in the area of banking and finance, insurance,
telecom, etc. who have a huge customer base and are keen to gain a “process efficiency”
with maximum “cost control” there by making a strategic shift of some of their
supporting services where they have a lower expertise in comparison to a list of possible
outsourcing companies. The recent “NASSCOM-Everest India BPO Study Report”
revealed that traditional sectors like banking, financial and manufacturing are under
boom. The human resource BPO sector (HR BPO Sector) also has a great potential to
offer huge opportunities as it has been estimated to grab almost 33 percent of the total
outsourcing revenue (Srikanth, 2006). While there is an opportunity for around
23 percent of market share for finance sector (Karnik, 2005), over 30 percentage of the
market is still for telecom, retail, media and energy. “The Indian BPO which has shown
a 35 percent growth over the past five years, has evolved not only in size but also in terms
BPMJ of maturity – service lines, service delivery capability and foot print”, said Som Mittal,
18,6 The President, NASSCOM (www.rediff.com/money/2008/jan/29bpo.htm). The status of
top ten Indian BPOs can be presented in Table IV.
Indian BPO companies are among the best companies of the world. They have
demonstrated better management capability and scored high on customer feedback
and pre-determined demonstrable skill sets. In the words of Mr Jagdish Dalal, MD,
882 IAOP and Head of the Judge Panel that ranked “2008 Global Out sourcing 100”:
The power balances in the outsourcing industry is shifting. Global competition in
outsourcing is intensifying and that was reflected in this year’s ranking with companies from
19 Countries vying for recognition (www.rediff.com/money/2008/may/02bpo1.htm).
Skilled labour, conducive business environments, better facility of telecommunication
and internet, etc. have been the pre-requisites for the very growth and expansion of this
high-tech industry (Mehra, 2005). It is, therefore, the basic infrastructural facilities with
supportive government policy measures that allure much this industry across the
geographical locations of our country. Recently released “NASSCOM-Everest Research
India BPO Study” revealed the fact that many MNCs still prefers to stay on tier-I Indian
cities though there is a possibility of encasing an additional 20-30 percent overall cost
saving in small and rural cities (Prasad, 2008a). MNCs consider it as a long-term measure
as they need to invest much on infrastructure and training for the potential rural youth;
irrespective of gender and even after that getting an expertise over the specialized skills
necessary for high-end outsourcing jobs is a bit critical (Table V). However, at least this
could be an opportunity area for low end, voice related call center operation.
Now what has made India the prime destination of most Western MNCs to outsource
supporting activities is, in fact, a worthy question to ask when countries like
China, Malaysia, Philippines, South Africa, New Zealand, Canada, Ireland, Caribbean,
Mexico, etc. also have many thing to offer as they are most tax-friendly countries having
matured business environment and moderate skilled labour. The simple answer is the
“overall competitive cost advantage package” that India offers, taking into account
various parameters like the cost of personnel and administration, telecom and property
rental, suitable talent team, matured business environment, higher standard of
information security, appropriate time-zone differences, etc. (Babu and Jayabal, 2004;
Mehra, 2005; Pai, 2006; NASSCOM Strategic Review, 2008). Countries like the USA

Sl no. Name of the company World ranking

1 Infosys (3)
2 TCS (6)
3 Wipro (7)
4 Genpact (9)
5 Tech Mahindra (10)
6 HCL Technology (11)
7 Mastek (16)
8 WNS Global Services (19)
9 Hexaware (22)
Table IV. 10 ExlService (26)
Top ten Indian BPOs
under world’s top 30 list Source: www.rediff.com/money/2008/may/02bpo1.htm
 Business process
Classification
as per outsourcing
infrastructural Employment opportunity
facilities Name of the cities In BPO (%) In IT sector (%)

Tier-I NCR (New Delhi, Gurgaon, Faridabad, Noida, 90 85

Greater Noida, Ghaziabad), Mumbai, Pune, 883
Hyderabad, Bangalore, Chennai and Kolkata
Tier-II Ahmedabad, Kochi, Bhubaneswar, Chandigarh, 10 15
Coimbatore, Indore, Jaipur, Lucknow, Madurai,
Mysore, Mangalore, Nagpur, Kolkata, Mohali,
Thiruvananthapuram, Vadodara, Tiruchirapalli,
Visakhapatnam, Hubli-Dharwad,Trivandrum,
Panchkula, Belgaun, etc.
Tier-III Bhopal, Goa, Kanpur, Aurangabad, Gwalior,
Hubli-Dharwad, Nasik, Surat, Allahabad, Table V.
Dehradun, Durgapur, Gangtok, Guwahati, Segment-wise
Ludhiana, Patna and Raipur, etc. distribution of Indian
cities as per
Source: International Business Times (2008) infrastructural facilities

and the UK would save up to 50 percent of their manpower cost and that is too with a
pre-set high quality norm, if they manage to shift their call centers into India; research
revealed the fact. The McKinsey Report-2005 says that the giant US pharma companies
can reduce the cost of developing a new drug up to 200 million $US, more than one-third
of its developmental cost at home land, if they outsource the same development activity
to India. However, “the only Country that could be a possible threat is China and it’s
largely because of their manpower size and the government’s incentives to industry for
growing in this area”, told Mr Natarajan, then The Chairman of NASSCOM in an
interview (Prasad, 2008b).

3. A “SWOT” analysis of Indian BPO industry

World-wide researchers like Johnson and Schneider (1995), Saunders et al. (1997), Lacity
and Willcocks (1998), Elmuti and Kathawala (2000), Linder et al. (2002), Odagiri (2003),
Ono (2003), Franceschini et al. (2003), Gottfredson et al. (2005), Mani et al. (2006), Wu and
Park (2009), Appelbaum and Samaha (2010), etc. have viewed BPO no longer as
appropriate only for transaction-intensive peripheral functions of enterprises, rather
this traditional business model is fast evolving into sophisticated areas like technical
and strategic outsourcing that affects the critical success factors, and therefore, the
governance and competitiveness of enterprises. Areas like knowledge process
outsourcing (KPO), LPO and IT outsourcing has made it more sensitive in recent
decades. Therefore, it is essential that only standard processes/functions should be
outsourced that would leverage organizational performance, decrease process errors
and facilitate communication (Willcocks et al., 2004). Conklin (2005) identified that with
the offloading of functions like payroll and recruitment, a company’s HR department can
concentrate more on strategy and became a facilitator for change. Saxena and
Bharadwaj (2009) highlighted about the significance of strategic partnering as a key
dimension for BPO success between European customers and Indian service providers.
BPMJ Similar findings were also generated when Johnson (2006) made a survey on
18,6 145 executives in a variety of organizations that have outsource business processes
where the author advised to carefully analyze and evaluate the nature of process they are
outsourcing with parameters like complexity, independency and strategic importance,
and then establish the right contractual relationship with the vendors. Even authors like
Adler (2003) and Fenny et al. (2005) found supporting HR outsourcing, however without
884 over-depending and compromising the core strategic and operational aspects. Others
like May (1998) explained about manager’s outsourced responsibilities and the needed
management competency to handle those to be vital for the success in outsourcing,
whereas, Mahmoodzadeh et al. (2009) emphasized about the significance of business
process management and knowledge management on reduction of outsourcing risks
and pitfalls.
In an attempt to identify the risks associated with outsourcing, Gewald and Franke
(2007) found that risk categories relevant to BPO and information technology
outsourcing (ITO) are fundamentally the same, but differ in magnitude where financial
risks are more important to decision makers, followed by strategic and performance
risks. That does mean cost cutting and strategic decision making happens to be the
necessity of outsourcing. In a case study conducted in Kuwait, Khalfan (2003) identified
the need to understand the complex culture and political implication of outsourcing on a
global context that determines success or failure of a country project. No doubt the
infrastructure, country risk and government policy largely determine the success of
outsourcing industry (Dunning, 1988). However, with the wide-spread of the consensus
many customers, general public and politicians have also increasingly questioned and
criticized firm’s outsourcing decisions to foreign locations, particularly for IT-enabled
business processes though it depends on various firm-specific factors like the
outsourcing objectives, experience, nature of the business process and customer
expectations (Graf and Mudambi, 2005).
It is, therefore, clear that suitable infrastructural facilities, skilled and cheap labour,
managerial competency, amiable vendor-client relations and favourable policy
measures of the government can stimulate the establishment of outsourcing industry
and strengthen its operations as there would be ample opportunities for future growth
and expansion of its activities. On the other hand, the reverse can be proved to be fatal as
that would destabilize the industry and India being no exception. In this connection
Sople (2009) elaborately explained about the cultural issues in the BPO industry in India,
where he emphasized about the availability of a pool of skilled and well educated work
force with good knowledge in English, mathematics and science. The other points he
raised about are the higher rate of attrition due to the unique working conditions of night
shifts that results health hazards due to change of biological cycle. In addition, the higher
academic background of employees happens to be a contributing factor to it as the
young Indian mass merely sees it as a platform for gaining some initial experience before
entering into any core job sector. The major threats he identified to the BPO industry
were both internal and external in nature that included shortage of competent managers
for middle and senior posts and opposition from the USA and the UK against job shifting
to India. In this context we have undertaken a strength, weakness, opportunity and
threat (SWOT) analysis that is expected to reveal more truth about the prevailing
practices in BPO industry.
3.1 Strength areas Business process
3.1.1 Availability of high-qualified and amiable English speaking work force. In India, outsourcing
there are around 3,573 listed engineering colleges (www.indicareer.com/engineering-
colleges-in-india.html) and 342 listed MBAs colleges (www.indicareer.com/MBA-
colleges-in-india.html) that produce brigades of engineers and managers every year.
Apart, lakhs of graduates and post-graduates from more than 493 Indian Universities
(www.indiastudycenter.com/univ/list.html) enter into the job market every year. This 885
elite mass is highly qualified and well versed with the US and UK accent. Even, the
decades long Indo-Western cultural diffusion has also made them much comfortable
with the customs and attitude of Western countries. Record says, India has the largest
English speaking mass next to the USA (Raul, 2004). When a considerable segment out
of them enters into the IT and ITES sector of the country, they find it easier to adapt
themselves as per the need of the host country with a minor training.
3.1.2 Easy access to high-skilled manpower associated with low cost structure. The
manpower cost of India is almost 10-11 percent to that of the USA in comparison of
what it is in the overseas, at least in tiers-II and III cities (Raul, 2004) and for tier-I cities,
it is almost about 40 percent of the USA. Again most of the executives at Indian call
centers are graduates and technically skilled for sophisticated operations
(Pricewaterhouse Coopers, 2005). Table VI extends a legible picture in this regard.
Study says, if a bank shifts work of a 1,000 people from the USA to India, it can save
about 18 million $US a year due to lower cost in India. As per McKinsey analysis, in
various work verticals like banking, telecom, insurance, pharma and automobiles,
Indian BPO companies offer an average of 5-8 percent of an “overall cost saving
package” to their clients. The study of NASSCOM even endorsed this fact of significant
cost saving. As per record, American Banking, Financial Services and Insurance (BSFI)
companies have saved 6 billion $US in the last four years by off shoring to India.
Recently, while addressing the Product and Embedded Software Summit in Bangalore,
Mr Bob Beauchamp, The President and CEO of BMC Software cited “for every one
Dollar invested in India, the value derived by the US economy is between 12 to
14 Dollars”. He described the outsourcing to India as an “irreversible” and “must have”
phenomenon for the betterment of Indian and global economy (www.outsource2india.
com/why_outsource/articles/BPO_india.asp).
It is further reflected from the research reports of NASSCOM and McKinsey that for
UK and US clients, outsourcing from India fulfills three major parameters. It helps them

Annual cost per employee Nature of IT Availability of

Country (in US$) Qualification work skilla skilled laboura

USA 19,000 Undergraduate and Part time 8.77 8.04

school pass outs
Australia 17,000 Under graduates Part time 8.27 7.78
Philippines 9,050 Graduates and under Full time/ 7.71 8.25
graduates part time
India 2,000 (tier-III cities) to Mostly graduates Full time 8.72 7.57
7,500 (tiers-I and II cities) Table VI.
A comparative analysis
Note: aFigures are based on a ten-point scale of quality and cost of
Source: Raul (2004) and Pricewaterhouse Coopers (2005) manpower
BPMJ to save cost, fulfills their expansion and diversification needs, and satisfies them with
18,6 an in-time delivery of high quality services that is possibly due to its superior domain
expertise of Indian BPOs (www.outsource2india.com/why_outsource/articles/BPO_
india.asp). Necessary “confidence building measures” taken by the Indian Government
with its neighbour countries, as a part of its flexible foreign policy, together with the
years of work experience of Indian BPO companies have been proved to be the most
886 alluring factors for a long-term investment in this industry by major MNCs (Raul, 2004;
Babu and Jayabal, 2004).
3.1.3 Stable call centers working in late shifts with suitable time-zone differences. Call
centers in India are much stable in comparison to their counterparts that are operating in
other developing countries. The appropriate time-zone differences of 12 hours for the
USA and five hours for UK help these companies to serve better for their Western clients
in late night shifts (Babu and Jayabal, 2004). The call center executives are also loyal and
attached with the organizations as the BPOs have much more benefits to offer to them
like provident fund, gratuity, group mediclaim insurance, personal accident insurance,
subsidized food and transportation, company leased accommodation, recreation,
cafeteria, ATM and concierge facilities, educational benefits, performance based
incentives, maternity leaves, employee stock option plans, etc. in addition to advanced
training and career growth opportunities, apart from the usual salary (Sharma, 2004).
The recent study estimated that Indian call centers would touch a top growth rate of
around 65 percent in future against the rate of 42 percent as in 2007 (www.rediff.com/
money/2008/feb/13bpo.htm). The survey reports of the Cyber Media’s Data Quest
domestic call centre held in 2007-2008 also mentioned that the domestic call centers must
fetch a revenue margin of Rs 85 billions in 2008-2009, which is further expected to grow
up to 110 billion in subsequent years.
3.1.4 Improvement of telecom and power sectors in India. Since 2002-2003,
international bandwidth situation has been improved dramatically with the lunch of
India’s first private under sea cable. In addition, VSNL also negotiated contract to use parts
of international cables like SEA-ME-WE II(40 GBPS capacity), SEA-ME-WE III(10 GBPS
capacity) and SAFE (40 GBPS capacity) to access connectivity to most locations of the
world, which ultimately provides considerable bandwidth to different companies. In
addition, privatization of the telecom industry has resulted enormous new players in this
sectors that ultimately helped in dropping of telecom cost up to 85 percentage. Then The
Finance Minister of India, Mr P. Chedambamram also proposed to allocate Rs 1,680 crores
in 2008-2009 against Rs 1,500 crores in 2007-2008 keeping in view of the growth trends of
IT and IT-enabled services. He mentioned that a scheme for establishing one lakh broad
band internet-enabled common service centers in rural areas and another scheme for
establishing “State Wide Area Network (SWAN)” with central assistance are under
implementation. A new scheme for State Data Centers has also been approved. He
proposed to provide Rs 75 crores for the common service centers, Rs 450 crores for SWAN
and Rs 275 crores for the State Data Centers (www.nerve.in/news:253500132206). In fact,
India has largest telecom network in Asia with one lakh kilometers of optic fiber cables.
Since 2000, the power reliability of the country has also been improved significantly,
especially in major destination cities of the IT-enable service providers like Delhi,
Mumbai, Bangalore, Pune, Chennai, etc. With more than 100 PC power back up in
software parks and favourable State Government policy reforms, the power supply to
the ITES companies has almost become adequate and uninterrupted.
3.2 Major weaknesses Business process
3.2.1 Academia and industry: an improper match. The education system of young India, outsourcing
especially in semi urban (tier-II cities) and rural followers (tiers-III and IV cities) has been
regarded as substandard; not at per with the industry requirements. Mr Sramana Mitra,
Forbes, penned that “many academic institutions are facing tremendous faculty
shortage and graduates have questionable mastery of their respective disciplines”. He
added, “India must first adjust its value system, and then it must broaden and 887
strengthen its educational programs to increase the supply of trained professionals”
(Mitra, 2008). Mr Arjun Vaznaik, COO, Tracmail, mentioned the industrial training to be
a very important aspect of ITES-BPO industry. Mr Raman Roy, Chairman and MD,
Quatrro BPO Solutions Pvt Ltd, added a bit more citing “Indian education system
needed to be aligned with the current industrial requirements to create specialized
professionals capable of handling the more sophisticated works coming to India”
(The Hindu Business Line, 2008). Perhaps, it is the right time for the stake holders of
Indian BPO companies to act upon the various “action plans” as mentioned by the recent
NASSCOM-Everest Joint Report for the sake of protecting India’s cost advantage
thereby creating BPO hubs and developing “BPO specific education models”.
3.2.2 Growing scarcity of expertise in specialized KPO and LPO market. For Indian
hi-tech youth, BPO industry has not yet become a very lucrative destination. The
reasons being non-transparent policy measures of management, mismatch of
expectations, job stagnation, lack of a long-term career prospects; or even insanity in
personal life due to work in shifts (Business Standard, 2005). The traditional industries
of banking, finance, IT, telecom, manufacturing, services, law and academics, etc. are
still the first choice of most graduate of engineering, management, finance and
pharmacy colleges. Report says, current BOP industry has already been challenged with
a huge talent crunch. No employee holds a wholesome experience on a particular
process. The situation is acute in specialized areas like KPO and LPO as they require
highly specialized skill pull. Currently, the Indian BPO sector is therefore experimenting
with an “assembly line” type of job allocation there by breaking the wholesome work
into some specialized and non-specialized categories. Necessary attempts are being
made to extend much lucrative pay package for the specialized category than the
traditional call centre employees as a strategic measure to allure and retain these expert
professional for a pre-determined time, as per the requirement (www.offshoringtimes.
com/Pages/2008/BPO_news2075.html).
3.2.3 Lack of infrastructural facilities in tier-II and III cities. Major infrastructural
facilities like road, power, telecommunication, etc. and favourable government policies
essential for the smooth operation, growth and expansion of the BPO industry are
readily available in tier-I Indian cities. However, in case of the tier-II and “follower” cities,
the situation is still the worst. The tele-density of India was as low as 4.90 in 2002,
whereas, the estimations for the USA, UK, China and Brazil stood at 66.50, 95.88, 13.80
and 21.80, respectively (Raul, 2004). This situation improved a bit during the last few
years. In 2005, the Union Government sought almost 1 billion $US from the World Bank
for its dream project “Bharat Nirman” where the cost for development of road, rural
power and telephone had been estimated to be Rs 47,554, 23,300 and 451 crores,
respectively (Tripathy, 2005). Still, the improvement has not been much significant for
the tiers-II and III cities regarding creation of facilities in comparison to their tier-I
counterparts. Mr Raman Roy, Chairman and MD, Quatrro BPO Solutions Pvt Ltd,
BPMJ therefore, stressed upon the need to create a significant social and physical infrastructure
18,6 in the smaller cities, which are the potential expansion areas (www.rediff.com/money/
2008/jan/29bpo.htm).

3.3 Opportunity areas

3.3.1 Year-long experience of Indian BPO firms. Superior work experience and process
888 expertise over the past decades have made the Indian BPO firms leaders across the global
market. India has been the first choice for outsourcing for more than 80 percent of US
companies, including high-end business processes. The Forrester’s research predicts that
almost 3.3 millions of US jobs would move off-shore by 2015. In addition, NASSCOM
study further revealed the fact that almost 35,000 legal jobs are likely to be moved from
USA to India by 2010-2011 as MNCs, international law and research firms have
significantly increased their outsourcing from India (Yojana, 2005a). Major Western
countries including USA and UK repose high level of confidence on India for outsourcing.
The reason being its years of work experience; strict adhering to the pre-specified quality
norms with an in-time delivery of service (Mehra, 2005; www.outsource2india.com/why_
outsource/articles/BPO_india.asp; www.offshoringtimes.com/WhyIndia.html).
3.3.2 Small cities with big potential. Under its “Bharat Nirman Project”, a four
year-dream plan of UPA, the Union Government proposed to connect 66,822 villages
with telephone lines that would ultimately cost around Rs 541 crores. The rural roads of
17,454 km length were planned to be constructed with an allocated amount of Rs 4,235
crores during the FY 2005 itself, having an ultimate forecast of Rs 47,554 crores for the
entire project period including rural and urban road development. This proposal was
presented by the Deputy Chairman of Planning Commission, Mr Monteksingh
Alluwalia to the visiting World Bank President Mr Paul Wolfowitz, which also focused
about an ultimate scheme for “rural electrification” with an estimated cost of Rs 23,300
crores. The work is in progress and perhaps that happens to be the biggest reason so as
to why the BOP vendors now ready to hit the rural segment (Tripathy, 2005). As
per study, in rural India, there are almost 30 millions of people with intermediate
qualification, both men and women, who would be an integrated segment of this rural
BPO revolution (www.offshoringtimes.com/Pages/2008/BPO_news2075.html). In the
words of Nikhil Rajpal, practice head of global service at Everest Research Institute “the
cost of operation is at least 15 to 20 percent lower in smaller towns” (Prasad, 2008a).
All this, is infact, due to the market saturation in tier-I cities. Som Mittal, President,
NASSCOM, said “the development of a few selected set of cities has put severe pressure
on infrastructure, cost and also increased migration of resources” (International
Business Times, 2008). “The two main investments in any BPO are infrastructure and
manpower. These are relatively less expensive for a domestic BPO given the lower
salary structure, low cost of training and business development expenses. They also
have the ability to move to lower cost tiers-II and III cities with the greater ease”,
Mr Anish Zaveri, Associate Director, KPMG Advisory, further explained (Russell,
2008b). The recent NASSCOM – Kearney study revealed that at least 50 leading cities in
India are suitable for the IT/ITES industry. The NASSCOM-Everest research reflected
the fact of generating 2-3 million jobs in rural India by the end of 2018. The industry can
grow up to the size of 50 $US till 2012. To meet this target, tiers-II and III cities need to
meet around 50 percent of the talent requirement; the report added (Narang, 2008). A few
current players in small cities are shown in Table VII.
 3.3.3 Mega allocation of fund for higher education. As a part and parcel of its flag Business process
ship project “Bharat Nirman”, the Union Government initiated several steps for the outsourcing
upliftment of Indian education system from the level of “Sarva Shikha Abhiyan” to
nurturing of “IITs, NITs, IIITs, IIMs and other Central and State Universities”.
According to a speech of Mr P. Chidambaram regarding union budget, the total
allocation of fund for the educational sector (including NER) had been planned to
increase by 20 percent from Rs 28,674 crores in 2007-2008 to Rs 34,400 crores in 889
2008-2009 (www.nerve.in/news:253500132206), which is expected to yield a better
productive result in the forth coming years.

3.4 Exsiting threats

3.4.1 Recent trend of job-shifting. The “cost-effective business process models” worked
wonder in Indian BPO industry till 2004-2005. Availability of skilled labour with the
least possible cost had been the catalytic factors behind the mushroom growth of this
industry (Raul, 2004). The wage rate hiked from 10 to 15 percent afterwards. However,
estimate says, the average salary hiked up to 17.2 percent during 2007 which further
declined to 14.8 percent in this industry. Record reveals the fact that almost
15-20 percent of total new comers quit the job during the very first year and almost all
leave their parent organizations with in four to five years of their joining (Russell,
2008a). Almost 30 percent of the employees of this sector fingered at the despairing
salary structure that happens to be the most common and compelling reason for them
to quit the job (www.rediff.com/money/2007/nov/17bpo1.htm). Apart, other issues like
threat of an unforeseen future, severe health hazards for insomnia, acute stress and
hyper-tension due to working in late night shifts against the biological clock, etc. and
therefore, smoking, drinking, unethical sexual indulgence in work place, devastation of
personal life as a result of sheer embarrassments, etc. are still on debate for higher
attrition (Sharma, 2004; Parikh, 2005; www.offshoringtimes.com/Pages/2005/BPO_
news280.html; www.rediff.com/money/2007/oct/05bpo.htm).
To tackle this problem, few BPO companies follow innovative HR strategies to retain
their employee. They maintain a transparent work atmosphere and appoint “fun officers”
who would ensure ways to motivate and release stress of employees The Hyderabad
based company “Brigade”, being an example (www.rediff.com/money/2007/nov/
17bpo1.htm). At the same time there are other companies, who follow the strategy
of making tie-up with key universities to train their employees with a view to build high
potentials within them. The tie-up of “Wipro” with Symbiosis Institute of Business
Management, “HCL” with VIT University of Chennai, etc. can be cited in this connection.

Sl no. Name of the company Place of operation

1 Infosis Chandigarh
2 Wipro Nagpur
3 Mind Tree Consulting Bhubaneswar
4 Bhilwara Scribe Bhopal
5 Jindal Group Bellary
6 Dell Mohali Table VII.
7 HSBC Vishakapatanam Indian IT-BPOs
operating in tiers-II/III
Source: Prasad (2008a) cities
BPMJ Then a category of players like WNS, Capgemini, Aegis BPO of ESSER Group, etc.
18,6 follow rigorous training modules for their employees (Sunija and Shind, 2008).
However, one thing is pretty clear that adoption of these innovative strategies to retain
employees has not yet become a tremendous industry practice, except the cases of few
mega players.
3.4.2 A comparatively higher rate of taxation coupled with trade restrictions
890 prevailing in India. Report says, major countries like China, Philippines, South Africa,
Malaysia, Ireland, Taiwan, etc. are mostly tax-friendly when it comes to operate the BPO
industry (Raul, 2004). The heaven success in outsourcing of manufacturing segment has
made “China” a world wide threat. The pillars of success being Chinese Government’s
direct involvement in business to let the industry get a heavy relaxation in many trade
related restrictions. India is still on edge due to the “competitive cost package” it offer and it
is the US economy to derive 12-14 times more value for every single dollar invested in India
(www.outsource2india.com/why_outsource/articles/BPO_india.asp). Still most trade
restrictions prevailing in India are liable to increase the fiscal burden over many MNCs
that would ultimately compel them to quit India and move to its near competitor’s nest.
3.4.3 A fear of resistance from the developed world for job shifting to India. During
the very early of this twenty-first century, the “British Union” had started campaigns
against job shifting (Raul, 2004). Even a voice was raised in “White House” against its
major off-shoring activities especially from countries like India and China. The scenario of
growing unemployment, and therefore, the higher inflation rates in the economy of the
USA and UK had been the crux to it (Haniffa, 2003; Iqbal, 2005). So far, India has been the
main outsourcing destination for USA fulfilling its need for IT and IT-enabled services,
including KPO and LPO (Mehra, 2005). The Indian BPO players have invested a huge
amount of capital for the growth and expansion of this hi-tech industry and this pace of
investment have been accelerated to its apex since the meaningful assurance of
Mr Robert Zoellick, Trade Representative to USA[1]. Though for the time being the
industry is on a flourishing node, still a threat will always be there as the democratic
countries throughout the globe are bound to listen the voice of their people sooner or later.
3.4.4 Political instability and terrorism. A stable government in states or centre
ensures strategically sound policy measures, which is, in fact, the pre requisite for the
smooth operation, growth and expansion of any industrial concern, and the outsourcing
industry of India is no exception. However, the multiple mid-elections in various states
invariably lead to a frequent policy change in accordance with the prototype of
the new government, which would not suit the operational strategic decisions of the
major business houses, including Western MNCs. Then, a narrow-end politics has been
chronic for decades, from east to west and north to south. Regional lobbies and
unhealthy politics in the name of cast, creed, religion, hunger, poverty, etc. has almost
become a common phenomenon, everywhere. Next is the issue of terrorism. Perhaps, this
peace loving and top democratic country of the world[2] has been contaminated
with the contemptible smile of vice. The Mumbai bomb blast had almost strangled
all the humanitarian values. Human bomb attack took the precious life of the then
Prime Minister Mr Rajiv Gandhi. Suicidal attack took his mother’s life, the then
Prime Minister of India, Mrs Indira Gandhi. The recent bomb blast attacks at Jaipur
and Delhi took hundreds of life. This long list of terror got a new tag with the
most recent suicidal attack at Hotel TAJ and Meridian. Then, the cross-border
terrorism has also exceeded all the boundaries. It is suspected that many
agencies like Hizbul Mujahideen, Al Queda, LTTE, etc. have already spread their Business process
wings throughout the country. In some states, ULFA, Maoists, Nexuls, etc. have been
operating a parallel government for a long time. Perhaps, sooner or later, these risk
outsourcing
factors will compel the CEOs and COOs of major MNCs to think beyond India while
taking strategic decisions regarding establishment of their BPO hubs.

4. Future of Indian BPO Industry: an over view 891

The future of BPO industry in India is bright. India is the market leader in BPO sector
and this industry is booming here due to the main elements like factor-cost advantages,
utilization improvement, economy of scale, conducive business environment, superior
competency and business risk mitigation (Sharma, 2004; NASSCOM-McKinsey Report,
2005; Pricewaterhouse Coopers, 2005; Himachali, 2006; www.etintelligence.com/etig_
root/etknowledgeseries/bpo/pdf/2.pdf; www.offshoringtimes.com/Pages/2005/BPO_
news369.html). Few supportive points in this connection can be cited as below:
(1) NASSCOM and EVEREST joint research[3] pegged the size of the BPO industry
in the India at 50 billions $US by 2012 (Russell, 2008b). Mr Gauray Gupta,
Country Head (India), Everest Group, a global strategy consulting firm, recently
said that this industry would generate about 2 millions of direct jobs and can add
up to 2.5 Percentage to India’s GDP (The Hindu Business Line, 2008). “While 30
billion $US is the achievable target, 50 billion $US is the aspirational target”,
NASSCOM President Som Mittal mentioned while releasing the findings of a
study on India’s BPO industry conducted jointly with the Everest Group (www.
rediff.com/money/2008/jan/29bpo.htm). According to NASSCOM-Kerney study,
the IT/ITES industry has contributed around 7-8 percent to the total GDP of the
country till 2010-2011 which employs almost 2 millions of professionals,
operating with a revenue margin of 64 billion $US and accounts for 5.4 percent of
India’s GDP. The industry is expected to create 8 million jobs by 2018 with the
massive infrastructural development of rural segment of India that would fulfill
the industry needs (International Business Times, 2008).
(2) As per news global InfoTech analyst, International Data Corporation, said
“The Indian software and BPO segment will grow at a rate of more than
16 per cent to become a $132 billion industry by 2012” (www.rediff.com/money/
2008/apr/30bpo.htm).
(3) As per a recent report, HIL, a Mauritius based health care investment company
is expected to pick up around 8.5 percentage of BPO arms of Apallo Groups,
India’s largest health care company (Singh and Chaudhury, 2008).
(4) Recent news revealed that the BPO company, Sutherland Global Service, who is
already in off-shoring operation in Chennai, Kochi and Mumbai, has planned to
employ over 10,000 people in its first Global Campus in Chennai
(www.offshoringtimes.com/Pages/2008/BPO_news2089.html).
(5) British banking giant, BARCLAY, is soon setting up a 5000-seat “Captive” BPO
in India, report said (Monga and Chakravarty, 2008).
(6) Bharti Airtel, India’s largest private telecom provider has entered into a three
years of outsourcing agreement with First Source Solution, one of the leading
global BPO service providers (www.offshoringtimes.com/Pages/2008/BPO_
news2109.html).
BPMJ (7) Azim H. Premji mentioned that reforms in the telecom sector were a success
18,6 story and mobile services in India were comparable to the best of the world
(www.rediff.com/money/2005/apr/04bpo1.htm).

5. Conclusion
The outsourcing industry in India is in sunshine, imparting multiple growth
892 opportunities to general public. It generates a huge employment opportunity every year.
With a better pay package in comparison to the traditional sectors, it has immensely
helped the employees to garnish their standard of living. Then this industry has also
helped its client MNCs to convert their “fixed cost” into a “variable” one as per their
requirement. The very flourishing of this industry indirectly boosted other industries
like telecom, education, transport, etc. However, an increase in informal employment
that leads to an uncertain future of employees has certainly become an issue today.
Many skilled employees elope from the work place every year for the sake of higher
education, salary and health hazards as they can never envisage it as a long-term career
opportunity due to casual employment.
Many “think tanks” believe that the BPO industry in India has been hyped much
than what it really deserves. The recent Gartner estimation indicated that the total
employment in IT-enabled industry is as low as 0.1 percent out of total work force of
the country, and therefore, development of the traditional sectors like agriculture and
hard core industries is in a higher need (Reddy, 2003). The figure may be true. But, the
fault lies in the defective policy measures of the government itself rather than
patronization of this high profile industry, looking at its various contributions to the
society and economy as a whole. Even the recent economic crisis in USA followed by
the recession in India has not dampened much this sector. On the other hand, countries
like China have already emerged as recent threats to Indian BPO sector due to their
cheap manpower, tax-friendly environment and strategic policy support from the side
of government, in addition to their close working style with local clients from
industries such as manufacturing, banking and securities that further develops their
domain expertise (www.rediff.com/money/2007/jun/22bpo.htm; Prasad, 2008b). If the
controversy still persists with opposition, sooner or later, China would overtake India;
and Indian Statistical Institutions will be sheer helpless to add this least 0.1 percent of
bright professionals into their long list of unemployed Indians.

Notes
1. On 13 January 2003, while having a discussion with Mr Arun Jaitley, then the Union
Commerce and Industry Minister of India, on bilateral and multi-lateral trade issues
Mr Robert Zoellick stated to the Minister that “the USA is strongly opposed to any attempt
to legislate a ban on outsourcing to India or any other country by American companies and
will resist efforts to do so” (Haniffa, 2008).
2. India is the largest democratic country of the world (www.bbc.co.uk/news/world-south-asia-
12557384). In addition, it has the second highest population of the world after China (www.
educationforallinindia.com/page133.html).
3. The Joint Research Report was titled “Nasscom-Everest India BPO Study-Roadmap
2012-Capitalizing on the Expanding BPO landscape” (www.rediff.com/money/2008/jan/
29bpo.htm).
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About the author

Dr Aruna Kumar Panda is an ICSSR-Post Doctoral Fellow in Business Administration and
presently working with the Department of Industrial Relations & Personnel Management
(IR&PM), Berhampur University, Orissa (India). He has authored two reference books on banking
and finance, and contributed research papers to referred journals like International Journal of
Commerce and Management (Emerald’s, UK), Small and Medium-Sized Enterprises &
Entrepreneur (SMEE) Review (University of Regina, Canada), Finance India (IIF, New Delhi),
Fortune Journal of International Management (FIIB, New Delhi), Prabandhan: Indian Journal of
Management, Co-operative Perspective (VAMNICOM, India), etc., to name a few. He has also
participated and presented papers in several national seminars and workshops. His major research
interests include the area of corporate finance, corporate governance, strategic working
capital management, banking and entrepreneurship. Aruna Kumar Panda can be contacted at:
arupanda@ymail.com

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