The emerging Indian BPO landscape (2007-2010)
Class of 1997 saw the MBA’s from prominent business schools heading for the BPO industry. It was then the done thing. IT/ITES companies took the lion share of the placements. Now a decade later, fresher’s head for financial services and probably after a few years retail, health care, infrastructure would be the choice of the season. This is in spite of the fact that almost all the global IT/ITES majors as IBM, GE, EDS, Deloitte, Cap Gemini, CSC, Accenture, etc. have since 2000 been pumping up BPO volumes in India by adding tens of thousands to their teams. Top quality fresh Indian management talent is coming to this industry at a slower pace than earlier, as they perceive other choices more valuable. Interestingly undergraduates / graduates from well known international universities are applying for jobs as an India stint on their resume is valuable for future career prospects.
Lately another problem has cropped up in the form of attracting & retaining middle and senior management teams. There is significant movement at this level between jobs. A year at the middle management level in any large IT/ITES major is a recipe to be part of the senior team elsewhere. This is a key risk as it has the potential to derail growth and stability of any BPO business. This demand-supply gap at the top level and also the skill set required for handling scalability and multicultural integration of operations is an opportunity for experienced expat managers to move into India operations as has been the case in the airline industry. Also Indians who are senior managers and have done stints overseas are heading back. Devesh Bahl joining Zenta at Chennai is a case in point.
With the industry moving into the matured phase, there is a certain industry sophistication that has come in thereby removing or decreasing many transaction hurdles and speeding the pace of growth. The key given being that the India brand consistently connotes quality, lower cost & timeliness. Hence we are seeing reverse mergers with Indian firms attempting to acquire/ acquiring many folds larger global players. Business control is moving from customer facing to delivery capability geographies. Developed countries are seeing a down turn in this industry just as in textiles, steel, etc and we are in the midst of the global integration & consolidation phase. Hopefully by 2010 as the Commonwealth games commence in Delhi there would be a couple of truly global MNCs in the BPO space with either Head Office or their origins from India. This has to happen given the changing business control & Nasscom’s well researched projections of a massive IT/ITES export jump from the present $40 billion to $60 billion in three years. Also any new business or capacity addition will be large as the hurdle level has gone up to a 1000 seater for a BPO doing voice/data and100 seater for a KPO focused on specific services that require inputs from professionally qualified teams. Below that the start up & ramp up risks are above the residual risk cut off point for a serious player. BPO has become a big ticket game. A number of large to mid sized Indian IT and ITeS providers are looking for acquisitions aggressively. Market gossip is that Tier -1 firms have full time teams sitting in the US/Europe scanning for acquisitions with a mine sweeper type mindset. All of them sit on a war chest of cash. Additional cash is easily available for such acquisitions. PE cos have ready cash for such acquisitions. The larger the deal sizes the better. In the US, blank cheque type of funds (SPAC) is back in fashion. These funds raise money from investors purely on the stated intent of acquiring an unidentified acquisition target and on the strength of their Board & business advisors. Since 2003 around 100 such SPAC companies have been formed in the US with around $5 billion of funds in trust ready for deployment. Global integration and India facing funds in the IT/ITES space include Phoenix, Millennium, Transtech, etc. Also UK’s Alternative Investment Market (AIM) could see similar companies being set up. Within India we also saw one of the first and large sized Management Buy out (MBO) at Intelenet and this seems to be the beginning of the trend. Indian entrepreneurs are in the process of exploring acquisitions in other strong delivery markets including Sri Lanka, Philippines, Vietnam, and Hungary.
The domestic market grew at 35 -40% last year signaling an increased acceptance of outsourcing as a business model. Presently there are around 15 -20 lakh people working for local call centres. Telecom, railways, banks, insurance, consumer durable businesses are driving outsourcing to BPOs. This industry list and the companies within is expected to increase as India Inc is itself scaling up and adding more number of $1 billion businesses every year. Strong domestic business helps in adding size and maintains strong delivery capabilities. Within the domestic space, Govt business can give a big push. Central & State Govt departments are increasing outsourcing. Interestingly a recent news item mentioned that soon BPOs will deliver a passport in three days. Also domestic call centres are going multi lingual showing market penetration. A case in point is Aegis India which offers work in 14 languages from nine centres.
Businesses whose customers use the newer media as the internet & mobile phone have outsourcing as a strategic part of the business model. As e-commerce and m-commerce gains momentum on these medias managing the back end will mean an increased outsourced business. Already BPOs managing SMS messages are receiving PE investment making their two year old entrepreneurs the newer breed of millionaires.
On the supply side, trained human resource is a well known constraint. It is also widely understood that while the Government is giving a thrust to education but the problem at the primary education level will take a while to overcome. The separation rate is high and probably at this level any other industry would have faced a major shake out. But in the IT/ITES industry this separation rate has been taken as a given and factored in the business strategies. Also best talent is being deployed on this risk. The mindset shift is from risk managed to risk enabled whereby the risk is also seen as a potential opportunity. Leaders in IT/ITES companies are relinquishing their present portfolio and moving into HR, training & education. Interesting models as partnering with third party trainers and education companies are being considered.
The Indian BPO industry is poised to seize the opportunity it has created for itself coming out of global integration and consolidation and also a domestic market which is becoming significant in the coming years. As mentioned above there is a heightened level of changing variables and business dynamics. Brand building & maintenance of the India brand probably has the immediate attention of trade associations. Industry leader, Rajendra Pawar’s views on Brand building as an increased residual value after the transaction is over sets the tone. Delivering more value than promised. What is residual value perceived by customers while dealing with the India BPO brand during 2007-2010 will determine if these were the years of the wasted big opportunity or the years of solid brand building and creating a bigger distance between the next competition.
