The Hindu Business Line : Dish it out differently

Economists will analyse the growth of the sector; industry veterans will tell you how it has contributed to the country’s GDP; journalists will regale you with insightful tales; but perhaps the popularity of a book such as One Night@ the Call Centre is an indication of how deeply it is entrenched in our minds.

In 2009, the industry contributed 1 per cent to India’s GDP and created 15 per cent of total urban jobs. But perhaps more interesting is the kind of aspiration it has raised in the minds of the Indian youth, and the sub-culture that has emerged around it, which is reflected in contemporary literature. And for sure, it has taken India to the world like never before. A gentleman in a remote town in the US could be speaking to a call centre executive in Gurgaon to get his computer fixed, or an elderly couple in London could be co-ordinating with a BPO worker in Kolkata to finalise their holiday. It took some by surprise and left a bitter after-taste in many a foreign mouth.

But that was no deterrent for the industry that grew like wild forest fire in India before spreading its wings to touch the shores of countries such as the Philippines, China, and others. In fiscal 2009, the Indian BPO sector earned $14.7 billion in revenue compared with $1.6 billion in 2002, a compounded annual growth rate of 37 per cent.

Over the last decade, cost escalation in large cities, high levels of attrition and competition from other emerging BPO destinations were recognised as the main challenges for the industry that employs 9.8 lakh people directly and has created indirect employment for another 40 lakh people.

Such was the state of affairs till the downturn almost halved the growth rate of the sector.

Downturn tsunami

Many enterprises, especially in the key markets of the US and Western Europe, lost money and were forced to declare bankruptcy, while some others were merged with relatively stronger organisations. Even companies that remained intact saw revenues dip significantly.

Unemployment rates grew and consumer spending reached rock-bottom. Enterprises faced with lower business volumes began asking for price reduction from their IT and BPO vendors and put new engagements on hold.

New model must

While the BPO industry is relatively on a stronger footing compared with the IT services companies, Nasscom predicts only a 15 per cent growth in the next two years, down from the previous highs of about 30 per cent.

Also, what has now become evident is the need to rework the entire business model, laying emphasis on building solutions, expanding delivery footprint and improving internal operational efficiencies.

“What is alarming is the rapidity of the drop,” says Amitabh Chaudhry, CEO, Infosys BPO.

And this has led to certain key shifts in client expectations; they now want vendors to share the business risks and offer more value for less. Therefore, responding to the changed business environment, a move away from the existing business models is a must for the BPO companies, he adds.

One focus area for companies would be to provide multiplier value, which includes offering small tools or point solutions that can add value to the basic services, providing business insights through analytics, addressing the cost of solutions/services, and developing more platforms. All this would involve huge investments in domain and technology, Chaudhry says.

Companies would also have to identify new productivity frontiers, including developing leaner operating models as far as headcount, space and technology are concerned. They would have to make their international centres more cost-competitive, and focus on tool deployment and automation.

Another area of focus should be developing variable pricing and operating models, sophisticated forecasting and sizing models and real time monitoring of products and performance. Companies would also have to build centres in key client markets such as the US, the UK, Australia, Germany and France.

“We are comfortable in re-inventing the wheel,” says Krishnakumar Natarajan, CEO and Managing Director, MindTree Ltd. “But now we would have to change the way we do business.” MindTree recently entered the knowledge process outsourcing (KPO) space with the launch of its analytics practice.

Sell value proposition

Organisations needs to move away from being order-taking companies, and instead of merely delivering services it is important to market the services as a product. Companies need to be much more marketing-focused and would have to sell the value proposition they have created, adds Natarajan.

He agrees that the focus of clients has shifted from merely costs and quality to value. “They would like the service vendors to put their skin in the game.” Thus, it becomes important to localise delivery and create local companies, he adds.

Going forward, BPO firms need to innovate on delivery models, and automate and standardise processes. They must constantly try to improve productivity and develop newer platforms that will differentiate them. It is also important to create, assimilate and propagate knowledge within organisations, Natarajan says.

There seems to be no immediate relief for the industry as low consumer spending in the US and Europe is expected to prolong the recovery process even as some say the crisis has reached the bottom.

Wait for the uptake

The prospects for the Indian BPO industry are interesting in the medium term but cannot be good in the short term, Pramod Bhasin, Chairman, Nasscom, said at the 11th BPO Strategy Summit 2009 recently held in Bangalore. “The European and the US consumers have been damaged. They have no means to come back and start spending,” says Bhasin. “We do not know when there will be an uptake,” he adds.

However, the future of the BPO industry is strong and healthy despite the short-term problems and the industry remains poised for remarkable growth in the next 20 years. “We are a part of the solution to get out of the recession. We are not the problem,” says Som Mittal, President, Nasscom.

BPO firms would have to expand their delivery network, and build up scalable and sizeable presence in key markets, including the US and the UK, Nasscom said. Bhasin says the shift would happen over time and it will take a while for the balance to be altered. At present a large part of the work is done from the Indian centres.

The smaller players could face more challenges as their ability to withstand pricing pressure is less as is their ability to invest in sales and marketing. If these companies have a defined value proportion, they will survive, Bhasin says. The flow of money has come down and firms that need funding could find it difficult, he adds.

Nasscom is putting together a forum for small and medium enterprises, where companies can discuss how they can address their problems and how Nasscom can be of help. “We can help them in their outreach and also supply research reports,” Bhasin says.

Choose target sectors

In future, a significant proportion of growth for the Indian IT and BPO industry is expected to come from businesses that are now considered non-core.

Analysts from research firm Everest Group said companies would have to be careful while choosing the new sectors they want to pursue.

“Everybody cannot do all of it. They will have to choose which ones they want to go after,” says Gaurav Gupta, Principal and Country Head, India, Everest Group, and Nikhil Rajpal, Principal, Everest Group. There has to be the discipline of focusing on things that are important to a company. Whether they have the capability is the key question to be asked, they say.

According to the analysts, there is still enough room for basic work as a lot of it in the BPO industry is transactional work. All companies cannot move up the value chain, they say. Also, there are enough opportunities for providing standalone BPO services. Not all clients are pushing vendors to combine BPO and IT services.

shamik@thehindu.co.in

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