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Adith Charlie

Mumbai, May 4 Is recession good or bad for the business process outsourcing sector? Probably both! Recession in US seems to be a mixed bag for Indian BPO vendors.

They do agree there has been a temporary slump in offshoring due to the US credit crunch, but expect the same recession-related factors to fuel increased demand for outsourcing by the end of the calendar year.

Both IT and BPO companies are witnessing a spate of project delays and cancellations, especially in the financial services space, due to recession in the world’s largest economy. It must be noted that clients can save up to $5 million in costs annually if they enter into a major outsourcing contract. So why are the US companies going slow on their BPO engagements even when they want to cut costs in a recession?

Says Mr Raju Venkatraman, Joint Managing Director and Chief Operating Officer of Mumbai-based Firstsource Solutions, “When a company is hit by a crisis that is at least 100 times bigger than the cost benefits that outsourcing will bring, would it think about saving $5 million a year or find solutions for the bigger problem?” Outsourcing is important, but not a priority in a crisis-like situation, he adds.

The uncertain environment has indeed forced client companies in the US to ‘reprioritise’ and ‘review’ their roadmap for the future, but key offshoring decisions are only being put on hold and not being relinquished altogether. However, this uncertainty is taking its toll on the Indian BPO sector, industry officials feel.

What BPO companies are facing today is the result of client situations of the past six months, said Mr Sandeep Soni, CEO and Executive Director of Spanco BPO Services. “In the last 3-4 months, clients were figuring out how to get out of the sub-prime mess and hence outsourcing was not one of their main priorities,” said Mr Soni.

Moreover, the depth of the crisis forced many clients to review all key decisions, resulting in a temporary stoppage of outsourcing work, a senior official with a Mumbai-based BPO said on the condition of anonymity. Moreover, a lot of CEOs and CFOs have been losing jobs overseas, which has again prolonged the decision-making cycle.

BPO firms say there is indication that client companies are nearing completion of their internal evaluation process. Once these companies have sorted out the issues, they are expected to offshore more than what they did in a bid to trim losses and stay competitive, an industry analyst said. This will result in larger ticket sizes for Indian BPOs, says Mr Lokendra Tomar, Senior Vice-President, Knowledge Services, Integreon.

Already, deal visibility is much better compared with the situation in August or September last year, prompting BPO firms to believe that there will be light at the end of the tunnel by the year-end, feels Mr Soni. Mr Tomar feels that the ill effects of the US recession on the BPO space would last, at most, till September.

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