Thursday, August 05, 2010

‘B’usiness ‘P’rocess ‘O’utdated!

The prime driver for BPOs in India has always been cost effictiveness, but that differentiating factor is now fading away. Is Indian BPO industry finally headed towards the death bed? by Ashutosh Harbola

The threat from Vietnam cannot be undermined too. While salaries of BPO workers in Vietnam are the lowest among almost all major offshore destinations (they are 40% lower than India and China, and more than 80% lower than Singapore), tax rates, too, are at par with other emerging markets. For instance, outsourcing software development work to a Vietnamese firm can cost a company up to 50% less than what it would have cost it had it outsourced the work to India. Even outsourcing companies in the Middle-East are now giving tough competition to Indian BPOs by moving up the value chain. If industry experts are to be believed, their efforts have resulted in an annual growth of over 20%. Historically, a large talent pool has been one of India’s major strengths, but if one goes by a latest ASOCIO-KPMG report, employability of Indian graduates at present is considered to be really low, with Economist Intelligence Unit (EIU) rating India as 2 on a scale of 5 on quality of labour force. This has made multinationals hesitant in outsourcing their work to India.

The next stumbling block is the high attrition rate in the Indian BPO industry which is invariably high (35%) when compared to its Asian counterparts. The increasing cases of data breaching too are affecting outsourcing to third parties in India. Then there is the slated withdrawal of STPI scheme in FY 2011. The sunset clause u/s 10A and 10B of the Income Tax Act gives a tax holiday to IT-BPO companies operating under an STPI, where the tax rate works out to be 20% for a BPO at present. This is expected to go up to 33% if the scheme is withdrawn. In all, the future of the BPO industry doesn’t look as sunny as road mapped by Nasscom with optimism deep sunk within. So is the major job provider (2.23 million) finally heading towards the death bed or is there a way out?

One possible way out could be to take BPOs to tier 2 and tier 3 cities where rising costs could be managed as compared to high cost offerings in the metros or tier 1 cities. The challenge there will be the training gap, but the investment does have long term potential. The next way could be to innovate within long term sustainable verticals like KPO (Knowledge Process Outsourcing), LPO (Legal Process Outsourcing), et al, for which even outsourcers are ready to pay a high price as they derive utility from them. “BPO will continue to evolve, both in form and substance, from simple processes in the beginning to complex KPOs later, involving support to business decision processes and consulting for optimal performance. Business itself will begin to look like a project management process (think construction projects) compared to the familiar current business. My Asian mind tells me that BPO will re-incarnate in another form, more suitable and responsive to the shape of the global economy,” Eugene Reyes, VP – Business Development North America, BPO International, Inc. tells B&E. Even Joel Perlman, Co-founder & President, Copal Partners feels that the next big opportunity for India could be DPO (Document Process Outsourcing) “KPOs & DPOs are high growth areas and India is well positioned to become a leader here,” he tells B&E. K. M. Nanaiah, MD, Pitney Bowes too holds the same view and feels that DPOs certainly have the potential to be the next big thing in India.

No doubt, because of its sustained cost competitiveness, experienced and large labour force, India has been considered to be a favourable BPO location in the past. But not any more! With radical changes in global economic environment & growing sophistication of customer needs, it’s now inevitable to evolve further. It’s therefore imperative for all stakeholders to identify challenges and put an action plan in place to meet them and identify areas that can catalyse future growth. If they are able to do so, good enough! If not, BPO, an acronym that most Indians rejoiced in, will soon become a reason to mourn over!

Ashutosh Harbola

For more articles, Click on IIPM Article.

Source : IIPM Editorial, 2010.

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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