The Hindu Business Line : Domestic focus pays off for many BPO firms

Chennai, June 15 A ship’s journey is complete when it returns home. Having sailed through the Americas, Europe and some parts of Asia-Pacific, Indian BPO companies in recent years have been heading home to dock their businesses.

“From a few domestic (BPO) operators in 2003, today the number of players is in thousands,” says Mr Anish Zaveri, Associate Director, Sourcing Advisory, KPMG.

A strong rupee and recession in the US market (which contributes over two-thirds of total Indian BPO exports) have pushed companies, who were hitherto reluctant to start Indian operations, to look inward. If this momentum continues, the dip in overseas revenues will be offset by the rise in domestic revenues, he says.

HTMT Global Solutions chose to go domestic in 2004-05 when the US Presidential elections were around and there was a wave against outsourcing. “At that time we chose to de-risk and look inward. This model has been successful and we have been consolidating operations,” says Mr Viswanath Rao, Senior Vice-President, Operations, HTMT. From bagging its first domestic client in September 2005 and closing the year with Rs 25 crore in revenues, the company today earns over Rs 100 crore and has about 6,000 employees dedicated to the Indian business.

About 25 per cent of Intelenet Global Services’ revenues come from the domestic market. With 15,000 employees the company provides services in 15 Indian languages for over 40 clients in telecom, banking, retail, consumer durables, aviation and public sector.

More complex processes

Ms Radhika Balasubramanian, Chief Operating Officer Intelenet - Domestic BPO Services, says revenues are growing at 40 per cent (year-on-year), and the complexity of work has increased – processes are becoming more end-to-end as opposed to being purely voice-based.

Unlike the offshore BPO industry which works on cost arbitrage, the domestic industry is more focused on managing non-core processes. Mr Anirudh Prabhakaran, Executive Director and President, South Asia, 3i Infotech, says clients are asking for process capability, efficiency and domain-specific value additions. The company focuses on customer acquisition operations in the BFSI and telecom verticals and has a dedicated employee base of 5,000. It reported revenues of about Rs 100 crore last fiscal, a 50-per cent growth over the previous year.

In 2003, most deals were a year-long discreet customer relationship management contracts valued between $50,000 and $1,00,000 (Rs 20 lakh- Rs 40 lakh), subject to quarterly reviews. Today, they range between $2,50,000 and $5,00,000 (Rs 1 crore- Rs 2 crore)and extend over 2-3 years, says Mr T.J. Singh, Research Director BPO, Gartner Research. “Today if you are not in (the domestic market), you are late. For companies with extra capacity (manpower), the best option is to deploy personnel for Indian clients,” he says.

But can servicing a growing domestic clientele compensate for the losses incurred in overseas business?

Yes, say industry players, albeit margins in the domestic business are lower than those in international business.

What is important is that seat utilisation is higher. For many, the day shift is dedicated to domestic business while night shifts are for overseas business. To maintain margins, employees working on domestic business are paid at least 20 per cent lower than those servicing foreign clients. This is because domestic recruits do not undergo the same technical, domain, socio-cultural and accent training as recruits for foreign business. Employee wages form 45- 60 per cent of BPO company revenues and the lower the cost, the higher the profitability margins.

Mr Prabhakaran of 3i Infotech says his employees are paid only marginally higher wages for servicing foreign clients. The company is able to achieve comparable margins from domestic and international businesses because of robust in-house technological platform and well structured processes. This, industry players say, will become the key to grow a successful domestic business and achieve an optimum revenue mix of 40(domestic): 60 (international). Developing proprietary technology and systems that can be customised for clients and innovative delivery mechanisms will help companies make the most of their buck in India.

Growth projections

According to Nasscom, the domestic BPO market has grown at CAGR (compounded annual growth rate) of 50 per cent from $200 million in 2003 to $1.6 billion currently. In 2012, the industry will be $15-20 billion strong.

Entry level salaries for domestic BPOs range between Rs 6,500 and Rs 8,000 a month and have been growing at a CAGR of 10 per cent annually for the last four years.

The total number of professionals in the domestic IT and BPO industry was 2.85 lakh in 2002 – 2003 and it has now grown to 4.27 lakh.