Mighty march of BPO brigade

Positive path: The sector posted a double-digit growth by bucking the trend

Mighty march of BPO brigade


The BPO industry directly employs about 9.08 lakh people and indirectly provides employment to another 40 lakh people in the country.Caught in the cusp of global financial crisis, Indian BPO (Business Process Outsourcing) industry is at the crossroads. Indeed, the year 2008 was a tumultuous one and transformational too for the sector. It saw players re-engineer and girdle themselves upto challenges that macro-economic milieu had sucked them into.

Braving the tsunami of uncertainty that had tossed them into a state of flux, while the sector did succeed in maintaining double digit growth rate, the swirl of events on the global marquee, sent it into veritable reality check mode.

BPO sector’s growth was also fuelled through increased diversification in their geographic base and forays into newer industry verticals, besides adaptation in service offerings portfolio. 

Furthermore, the sector’s resilience and tenacity and reiterating viability of India’s fundamental value proposition speaks volumes of the sector that is coming into its own like its bigger brethren — IT sector.

Tough time

Does that mean it’s all honky-dory for the sector which has weathered the turmoil and willed itself to face rough road ahead? Well, while the effects of economic crisis, as experts believe, are expected to linger in the near term future, the current mood is one of “cautious optimism.” 

In a recent Nasscom BPO Summit held in Bangalore, Nasscom Chairman Pramod Bhasin described the situation as one of “extreme pain” being battered by global meltdown that has resulted in “severe pricing pressures and erosion of margins” as another expert observed.

True, the sector, in the past decade, has logged robust growth clocking revenues of $14.7 billion in fiscal year 2009 as against $1.6 billion in fiscal year 2002, registering compound annual growth rate of 37 per cent.

The sector’s share as percentage of total IT-BPO exports was 27 per cent and resulted in direct employment of 9.80 lakh and indirect employment of 40 lakh. Bhasin said the sector had a phenomenal growth over the past seven to eight years till the global meltdown in the second half of fiscal 2009. The sector has grown and matured phenomenally during the last decade, evolving from vanilla voice based services to high-end knowledge based services. It is quite sturdy to withstand the storm.

Promising future

Further, according to Nasscom, in spite of tough economic environment, the sector is projected to grow by 15 per cent in fiscal 2010 and remain net hirer. Nasscom also estimated that the net addressable market for the sector by 2020 in the range of $605-660 billion.  The new business opportunities are expected to drive over 70 per cent of this incremental growth. Nothing can be far more reassuring than the fact that, according to Nasscom, the BPO sector is expected to be a bigger opportunity than IT services by 2020.

Incidentally, according to Nasscom-IDC analysis worldwide technology and BPO spend estimates during 2009-2010 is expected to grow at 6.5 per cent, while, on the contrary, IT spending seen to decline as compared to 2008.

Export revenues are estimated to gross $47.3 billion in fiscal year 2009, accounting for 66 per cent of total IT-BPO industry revenues. Software and services exports (including BPO) are expected to account for over 99 per cent of total exports, employing over 1.76 million employees.

Nevertheless, despite this rosy scenario, the reason for current state of angst and anxiety gnawing the industry is not far to seek. For, the bulk of sector’s revenues are generated from the US and BFSI (banking, financial services and insurance) verticals — two segments, which have ironically faced the full fusillade of the current economic crisis.

If the US accounted for 59 per cent of business, BFSI segment share was 50 per cent.

Thereby, the current crisis, has, according to industry experts, significantly impacted buyers’ needs and their quintessential approach to offshoring. And, as if, rubbing salt into the wound, US President Barack Obama’s Buffalo-Bangalore shrill anti-outsourcing political high standing has but only further compounded the business matrix and survival strategies of the sector.

New markets

With clients taking to re-evaluation of their sourcing model and seeking to get into outcome-based pricing than full-time equivalent pricing, et al, the sector has been driven into discovering new growth avenues such as looking beyond BFSI industry and explore tapping such verticals like manufacturing, healthcare, retail, public sector. Expanding into newer geographies such as continental Europe, Asia, South America, setting up specialised growth within organisation to drive domestic market growth, tailoring service delivery norms to suit the domestic market, mining existing customers, using technological and analytical capabilities to provide “attractive value proposition and delivering quality services” as Bhasin observes to wade them through the turmoil.

Besides, innovative business models and enhanced global footprint are other prescriptives suggested by industry veterans to brave the tough times the players, both small and big, find themselves in.

Incidentally, according to Bhasin, the current scenario is one of big opportunity for the sectoral players to scout for acquiring business abroad as also buy assets since valuations have become rather cheap, while adding that the sector is likely to see better times in medium-to-long term horizon. 

Nasscom President Som Mittal opines that the sector stymied with multiple challenges including that of competition from other countries and cushioning the impact of the slowdown, needs to find new avenues for growth and look at strategies to improve operational efficiencies.

Further, Bhasin opines, for India to remain global leader in back-office operations, it’s time that all stakeholders, including the Government and industry, collectively addressed the challenges such as lack of public services, cost of training and infrastructural issues as well, head on.

Mittal noted that “extension of fiscal benefits like 10A/10B sections under Software Technology Parks of India (STPI) scheme is imperative to sustain the growth momentum and compete in the global market.” Sections 10A/10B of Income Tax Act (IT Act), 1961, were introduced a decade ago to exempt STPI-registered IT and IT-enabled services firms from paying taxes on their profit from export of software and services. The 10-year scheme was extended by a year to fiscal 2009.

With a clutch of countries furiously engaged in creating enabling environments aimed at replicating India’s success story in BPO sector, Nasscom says there is significant headroom for growth, and with the competition increasing manifold, experts opined it indeed provides serious food for thought. The silver lining of economic downturn is the opportunity for the sector to enhance its overall efficiency, they note.

New strategy

Expansion to newer markets, building institutional relationships with appropriate stakeholders in these markets and in developed regions, taking broader leadership role and drive global sourcing to next level of customers are imperatives the sector faces, they aver.

Also, they note that, to develop India as trusted sourcing destination, Indian IT-BPO companies must put in place world-class security standards, to ensure high levels of quality and service delivery.  Indian IT-BPO industry is indeed at a critical inflection point in its evolution. Behind it stands a decade of stellar performance through unbridled growth which has left a deep imprint on the Indian economic and social landscape.

Moving forward, it faces a transforming macro-economic environment, rapidly changing customers and needs, evolving services/business models, and rising stakeholder aspirations. How the sector assimilates these demands and redefines strategic imperatives to push itself forward will form the future fulcrum of the still nascent, yet spiritedly soaring Indian BPO sector that has been unwittingly caught in the maelstrom of multifarious proportions.

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