The Hindu Business Line : Even as local BPOs scale up, MNCs widen captive base

WITH labour issues acquiring political hues, 2005 turned out to be a year of mixed fortunes for the pin-up BPO sector which made a conscious attempt to move up the value chain and stake claim to the $17-billion opportunity posed by the KPO market in 2010. The KPO space involves high-end processes such as value research, investment research, patent filing, legal and insurance claims processing.

As limits of labour arbitrage became apparent, the voice-based commodity services plagued by high attrition rates took a backseat and companies sought profitable and scaleable business models that could bring the much- needed customer stickiness.

Mega deals made way for smaller orders that involved multi-sourcing — where clients work with a number of services vendors, rather than a single outsourcer.

Existing BPO units of leading offshore firms including Wipro, TCS and Infosys emphasised on integrated solutions seeking to leverage their existing base of IT customers for BPO opportunities, while once-captive heavyweights including Genpact and WNS Global Services touted their growing scale in transactions processing and KPO to acquire new customers — at the same time enjoying the benefits of substantial work streaming in from erstwhile parents.

Captive model still in

Any impression that third party strategy was gaining favour over captive way of doing business — following GE's decision to restructure its Gurgaon-based BPO unit Gecis (now Genpact) in December 2004 — were quickly dispelled by reports that companies such as HSBC and JP Morgan Chase are planning to strengthen their captive operations.

Confirming the trend, a study by TPI Advisory Services India revealed that large companies choosing to offshore to low-cost locations such as India and China were increasingly doing so through their wholly owned subsidiaries rather than external services providers.

Either way, offshoring to India was clearly the flavour for overseas corporates as the country continued to be the most attractive destination for outsourcing of IT, BPO and call centre services, ahead of arch sectoral rival China.

An annual ranking by consultancy firm AT Kearney stated that the gap between India and China was larger than the gap between the next nine countries combined while Forrester went so far as to claim that "truly competitive companies could take years to emerge from locations like China".

More immediate was the threat, for Indian firms, from global majors such as Accenture and IBM who were not only expanding their Indian footprint substantially to complement a substantial global presence, but also had strong client relationships.

Mergers and acquisitions

The BPO players responded by taking the inorganic route to acquire delivery capabilities and access to new clients and the market saw a spate of merger and acquisition activities.

TCS announced its decision to buy life and pension business of UK-based Pearl Group in October and closed the year with acquisition of Comicrom, a leading BPO firm in Chile in November. WNS bought Arizona-based Trinity while Genpact acquired Creditek.

In a year when controversies loomed large, the industry found itself in the eye of storm after former employees of MphasiSs BPO were arrested on charges of defrauding four Citibank accountholders in New York to the tune of $300,000.

Then followed a spate of sting operations including one which claimed that an employee of Gurgaon-based company had divulged personal details of over 1,000 Britons for $5 per head.

While the first half of the year exposed the soft underbelly of data security processes in BPOs, HR practices of companies continued to make headlines during the remaining part of the year.

A 2004 report published by V V Giri National Labour Institute likened the work conditions in call centres to `19th century prisons', and red flags flew high over the industry as Left parties called for unionisation of the IT and BPO employees.

Troubles mounted for BPO companies and public emotion ran high after the brutal murder of an MNC call centre employee in Bangalore, which threw the spotlight on the issue of `poor working conditions at call centres'.