The Hindu Business Line : How boom can go bust

With its BPO portfolio including high-end analysis work, content management and knowledge management, India is a force to reckon with in the global BPO market. However, the industry's lack of adequate infrastructure warrants serious attention and, more importantly, calls for proactive support from the government.

The BPO sector claims 80 per cent of global market share. But that is not the complete picture. — Shaju John

THE Indian Business Process Outsourcing (BPO) sector has metamorphed from pure data conversion to high-end analysis. Trends show that the BPO market is booming and will continue to work wonders for the sub-continent in the years to come.

A look at the history of the BPO sector reveals that business process outsourcing has been in India for more than a decade, with most outsourcing assignments coming from American firms which made use of India's cheap low-end IT manpower. Today, of course, India's BPO portfolio has expanded to include high-end analysis work, content management, knowledge management and the like.

The boom

India is now a giant in the BPO space, claiming 80 per cent of the global market share. Analysts' findings show that India has earned more than $3.60 billion during the previous year, and the figures are expected to reach a whopping $16,000 billion by 2007.

A research agency, Evalueserve predicts that by 2010 the global high-end BPO market will be worth $50 billion. India's market share in the BPO sector, after taking into account the latecomers, is a staggering $30 billion.

The industry abounds in opportunities for budding professionals, and employs over 2,50,000 people. This number is set to follow the same trend as the revenues in the sector.

According to a recent Kearney report, a number of US banks and mutual fund companies are planning to `relocate' 5,00,000 jobs in the next five years.

Needless to say, India will play a key role. Analysts predict that the Indian BPO market would require one million employees by 2008. A study by Forrester Research in November 2002, estimated that the US would outsource 3.3 million of its jobs by 2015, of which 2.31 million would come to India.

One of the factors spurring BPO expansion in India is the healthy competition between cities. The top five are Chennai, Bangalore, Delhi, Mumbai and Kolkatta, with Bangalore targeting the IT market, Chennai and Kolkatta focussing on accounts and Delhi and Mumbai taking up follow-up of payments and high-end job analysis, respectively. Quite understandably, Bangalore leads the pack, with its professional approach to attracting and retaining clients. Mr Shankaralinge Gowda, Additional Secretary to the Chief Minister, in fact, conducted assessment tests for 3,00,000 students in Karnataka last month.

Further, as part of a unique State-Business Process Outsourcing (BPO) industry partnership, Karnataka's Secretary for Information Technology, Biotech and Science and Technology plans to use assessment companies such as MeritTrac, to conduct aptitude and voice tests in eight centres.

With the first phase of testing beginning in Mysore and Mangalore, Mr Gowda hopes the assessment will not only help BPOs attract and retain talent at entry level positions, but also make Bangalore a better choice for setting up operations.

The bust

But the picture is not without its share of blots. The Indian BPO industry is under considerable threat owing to lack of proactive government support. Analysts predict that India's current market share of 80 per cent might whittle down to 55 per cent by 2007.

Lack of infrastructure seems to be the main problem. Even Bangalore has been facing problems, with a number of IT companies threatening relocation to other cities owing to poor infrastructure. Infrastructural facilities need to be sufficiently developed to both accommodate future expansion of the industry and sustain the current market. This can be achieved only if the top five players shifted focus to second rung cities as well.

Data security is another major obstacle to the growth of the Indian BPO industry.

According to Mr Srikanth Karra, Head, HR, GE Capital, "Eighty-three per cent of Indian business have reported a security breach (out of which 42 per cent had three or more breaches), against 64 per cent globally. This could become an impairing factor if there is healthy competition in the global market. There is every possibility that the competing countries and those about to compete may capitalise on this to further and quicken competition."

Another hurdle is attrition which ranges from 55 per cent to 60 per cent in cities such as Bangalore and more than 90 per cent in Chennai. The problem assumes more significance in view of the extensive investment in training, which is sometimes done in-house as in the case of corporate giants such as ABN Amro.

Infosys Technologies, for instance, is setting up a training centre at Mysore at a cost of Rs 260 crore. Attrition is highest at the mid-management level. As a result, it is not uncommon to see freshers becoming managers in less than a year of joining. This affects the quality of output.

KPMG personnel are said to have warned that the shortage of people in the coming years would stunt growth in the BPO sector. More than a million people would be required by 2008, but supply will fall short by more than 250,000. The remaining 750,000 would be available only by the end of the decade.

Against this scenario, India which has been an unrivalled force in the BPO domain will face stiff global competition. Russia, China, Australia, South Africa, New Zealand, Mauritius, Fiji, Malaysia, Philippines and Ghana are the countries that top the list as potential threats to the Indian BPO market. Where the Philippines focuses on voice services, Malaysia has zeroed in on transaction processing and South Africa on other BPO operations. Certain countries are even relying heavily on their proximity towards the US. Moving forward

India is at the crossroads vis-à-vis the BPO industry. It is time the Government became proactive and took definitive measures. For a start it could:

Formulate a road map/game plan;

Evolvea Hybrid BPO business model to suit the Indian-Western requirements;

Provide proper induction to the employees;

Put in place professional training courses;

Improve infrastructural facilities; and

Provide incentives to motivate and encourage companies. Such an approach would restore the confidence of the outsourcers.

(The author is with a leading consultancy.)