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 CAGR 110 Sales & marketing at 45% CAGR HR at 82% CAGR F&A at 16% Others at 19%

 

 

Key 3rd party player are Aegis, HTMT,IBM, InfoVision, Omnia, Mphasis, Sparsh Andromeda,Direm,InfoVision, Kankei, Omnia Cross-Domain,Hewitt, MaFoi,Teamlease Bill Junction, Venture Infotek 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.

 With

most 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

Sign up to vote on this title
UsefulNot useful