The Hindu Business Line : Domestic BPO sector to treble revenues by 2012

Mumbai, July 27 There will be an almost four-fold rise in the number of people employed for providing back office services to Indian domestic firms as this industry is expected to more than treble in revenues by 2012.

According to a study by the Pune-based research firm, Valuenotes Database, domestic business process outsourcing (BPO) firms would collectively employ about 5.4 lakh employees in the next four years as against 1.4 lakh staff currently. In the same time period, it will achieve revenues of Rs 22,800 crore from Rs 6,900 crore in fiscal 2008, the study suggests.

Apart from opening new vistas of opportunity for third party BPO companies, the growth in domestic BPOs would help in creation of job opportunities in semi-urban pockets of the country.

Unlike the international service providers, the driver for domestic BPOs is not labour or cost arbitrage but the need to provide better customer services, scale up rapidly, enhance productivity and reduce time to market, Mr Pranav Dixit, Senior Analyst with Valuenotes, told Business Line.

Third party vendors

Third party players will be better positioned to benefit from this growth wave going forward as companies are increasingly choosing them instead of forming a captive to get back-office work done. BPO observers feel that many captives are finding it difficult to scale up owing to lack of strategic direction within the parent firm. Moreover, they are not able to justify overheads in many cases with their current scale of operations.

By 2012, revenues for third party vendors will grow at an annual rate of 44 per cent to Rs 7,700 crore from Rs 1,800 crore, Valuenotes says. (Currently, third party companies collectively control 27 per cent of this market.)

Telecom and banking, financial services and insurance together amount for nearly three-fourths of the total revenue generated by this sector. Low value but high volume services such as data entry, digitisation and aspects related to customer assistance would be easily outsourced in the Indian context, said Mr Dixit.

Going forward, organisations and institutions in verticals such as government (for e-governance programmes) and retail (for customer loyalty and retention) are expected to increase outsourcing.

Entering Tier-2 cities

Since a lot of the back office work ought to be done in regional languages, BPO firms will be keen to set up shop in tier-2 and tier 3 cities, said Ms Neeraja Kandala, Senior Analyst, Valuenotes.

“By doing so, they can tap into the readily available talent pool which has the requisite linguistic capabilities. It also decreases their overall cost of doing business,” said Ms Kandala.

While margins in international BPO business could be anywhere between 15-20 per cent, it is on the lower side- between 10 and 12 per cent for domestic operations. However, the sheer size of the opportunity has prompted companies such as Genpact, Infosys and many others to seriously commit time and capital to this space.

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Domestic BPO sector to treble revenues by 2012