Posted in Finance Articles, Total Reads: 3929
, Published on 18 January 2014
Brief history of the industry
BPO industry in India is a whopping 11 billion USD business and employs more than 2.8 million people. A major chunk of these revenues (around 43%) comes from the IT sector. The BPO industry started in India when AMEX outsourced its back-office operations to Gurgaon
What will work in favour of Indian BPO
With a strong growth expected for the banking industry many banks actually are planning to increase their use of BPO. This is due to the low appetite of capital spending given the uncertainty in business environment and a strong inclination for organizational agility. Many organizations are actually moving towards the mixed economy model involving both in-house and outsourcing facilities.
Another significant driver of growth for the BPO industry in India will be healthcare and insurance With a rise in health awareness among Indians and increased income level spending on healthcare will increase in the years to come. These companies mostly prefer to outsource their back-office jobs to BPO.
Also there are contracts pouring in from the hospitality sector. With a large no of back office operations now outsourced to the BPO industry the sector will surely bring in revenues for BPO companies
New Model of Revenue generation in BPO
1. Plagued with increasing competition and decreasing margins the BPO sector is coming up with innovative revenue generation model. They are investing heavily in building platforms. These platforms use cloud technology and bundle business with technology. The customer pays only for using the platform. After the purchase request the BPO manages purchases, generates purchase orders, follows up goods shipment etc.
2.Banking on in class learning and experiences has helped the BPOs to transform their service to an altogether level.
3. Simultaneously, companies are changing their business models to reflect this ongoing switch. Companies are now paid on the basis of the no of invoice processed rather than on headcount
4. Demographics of India will also aid in the growth with a majority of the population below the age of 30.
Major threat to Indian BPO industry
Over the years Philippines has emerged as a major competitor to the Indian BPO industry. It has a history of cultural exchange with US and hence is becoming a better choice for call centre despite high staff cost. If we look at pure voice operations Philippines has already pushed India to the no 2 position. Also the wage difference between India and other western countries is decreasing.
Another potential threat is Egypt whose costs are comparable to that of India and which is getting several projects from West Asia. At the same time manpower in India is becoming more and more costly due to increase in BPO salaries and increase in costs of training. Plus the employer also arranges transport for women in night shifts. This has increased the cost pressures on several companies.
Paradigm shift for Indian BPO
The existing model of headcount revenue generation is becoming irrelevant for the BPOs
Indian BPOs are venturing out into newer and untapped markets like SMBs and public sector.
Increase service offerings that are deeply embedded in customer value chains
Government pressure on creating local jobs will alter the mix- a higher proportion of non-Indians with localized capabilities will be recruited
Also the Indian BPOs are now looking at markets beyond US and UK. They are now venturing into newer markets like Middle East, Africa etc.
Indian BPOs also have to look beyond the metros for the talent pool in order to control costs.
Further the IT initiatives of the Government like public service (PDS, citizen identification), Healthcare (mobile clinics), Education (E classrooms) will surely provide an impetus to the Indian BPO industry and help it grow at CAGR of 14%.
Its time that the Indian BPOs come out with innovative revenue generation models like platform based revenues, foray into newer and untapped markets and look at talent pools from tier-2 cities to ride the present tide of increased cost pressures.
The article has been authored by Asit Mohapatra, IIM Indore