http://www.thehindubusinessline.com/2004/12/20/stories/2004122000310900.htm
How boom can go bust
Gowthaman Muruganandan
With its BPO portfolio including high-end analysis work, content
management and knowledge management, India is a force to reckon with in
the global BPO market. However, the industry's lack of adequate
infrastructure warrants serious attention and, more importantly, calls
for proactive support from the government.
The BPO sector claims 80 per cent of global market share. But that is
not the complete picture. - Shaju John
THE Indian Business Process Outsourcing (BPO) sector has metamorphed
from pure data conversion to high-end analysis. Trends show that the
BPO market is booming and will continue to work wonders for the
sub-continent in the years to come.
A look at the history of the BPO sector reveals that business process
outsourcing has been in India for more than a decade, with most
outsourcing assignments coming from American firms which made use of
India's cheap low-end IT manpower. Today, of course, India's BPO
portfolio has expanded to include high-end analysis work, content
management, knowledge management and the like.
The boom
India is now a giant in the BPO space, claiming 80 per cent of the
global market share. Analysts' findings show that India has earned more
than $3.60 billion during the previous year, and the figures are
expected to reach a whopping $16,000 billion by 2007.
A research agency, Evalueserve predicts that by 2010 the global
high-end BPO market will be worth $50 billion. India's market share in
the BPO sector, after taking into account the latecomers, is a
staggering $30 billion.
The industry abounds in opportunities for budding professionals, and
employs over 2,50,000 people. This number is set to follow the same
trend as the revenues in the sector.
According to a recent Kearney report, a number of US banks and mutual
fund companies are planning to `relocate' 5,00,000 jobs in the next
five years.
Needless to say, India will play a key role. Analysts predict that the
Indian BPO market would require one million employees by 2008. A study
by Forrester Research in November 2002, estimated that the US would
outsource 3.3 million of its jobs by 2015, of which 2.31 million would
come to India.
One of the factors spurring BPO expansion in India is the healthy
competition between cities. The top five are Chennai, Bangalore, Delhi,
Mumbai and Kolkatta, with Bangalore targeting the IT market, Chennai
and Kolkatta focussing on accounts and Delhi and Mumbai taking up
follow-up of payments and high-end job analysis, respectively. Quite
understandably, Bangalore leads the pack, with its professional
approach to attracting and retaining clients. Mr Shankaralinge Gowda,
Additional Secretary to the Chief Minister, in fact, conducted
assessment tests for 3,00,000 students in Karnataka last month.
Further, as part of a unique State-Business Process Outsourcing (BPO)
industry partnership, Karnataka's Secretary for Information Technology,
Biotech and Science and Technology plans to use assessment companies
such as MeritTrac, to conduct aptitude and voice tests in eight
centres.
With the first phase of testing beginning in Mysore and Mangalore, Mr
Gowda hopes the assessment will not only help BPOs attract and retain
talent at entry level positions, but also make Bangalore a better
choice for setting up operations.
The bust
But the picture is not without its share of blots. The Indian BPO
industry is under considerable threat owing to lack of proactive
government support. Analysts predict that India's current market share
of 80 per cent might whittle down to 55 per cent by 2007.
Lack of infrastructure seems to be the main problem. Even Bangalore has
been facing problems, with a number of IT companies threatening
relocation to other cities owing to poor infrastructure.
Infrastructural facilities need to be sufficiently developed to both
accommodate future expansion of the industry and sustain the current
market. This can be achieved only if the top five players shifted focus
to second rung cities as well.
Data security is another major obstacle to the growth of the Indian BPO
industry.
According to Mr Srikanth Karra, Head, HR, GE Capital, "Eighty-three per
cent of Indian business have reported a security breach (out of which
42 per cent had three or more breaches), against 64 per cent globally.
This could become an impairing factor if there is healthy competition
in the global market. There is every possibility that the competing
countries and those about to compete may capitalise on this to further
and quicken competition."
Another hurdle is attrition which ranges from 55 per cent to 60 per
cent in cities such as Bangalore and more than 90 per cent in Chennai.
The problem assumes more significance in view of the extensive
investment in training, which is sometimes done in-house as in the case
of corporate giants such as ABN Amro.
Infosys Technologies, for instance, is setting up a training centre at
Mysore at a cost of Rs 260 crore. Attrition is highest at the
mid-management level. As a result, it is not uncommon to see freshers
becoming managers in less than a year of joining. This affects the
quality of output.
KPMG personnel are said to have warned that the shortage of people in
the coming years would stunt growth in the BPO sector. More than a
million people would be required by 2008, but supply will fall short by
more than 250,000. The remaining 750,000 would be available only by the
end of the decade.
Against this scenario, India which has been an unrivalled force in the
BPO domain will face stiff global competition. Russia, China,
Australia, South Africa, New Zealand, Mauritius, Fiji, Malaysia,
Philippines and Ghana are the countries that top the list as potential
threats to the Indian BPO market. Where the Philippines focuses on
voice services, Malaysia has zeroed in on transaction processing and
South Africa on other BPO operations. Certain countries are even
relying heavily on their proximity towards the US. Moving forward
India is at the crossroads vis-=E0-vis the BPO industry. It is time the
Government became proactive and took definitive measures. For a start
it could:
Formulate a road map/game plan;
Evolvea Hybrid BPO business model to suit the Indian-Western
requirements;
Provide proper induction to the employees;
Put in place professional training courses;
Improve infrastructural facilities; and
Provide incentives to motivate and encourage companies. Such an
approach would restore the confidence of the outsourcers.
(The author is with a leading consultancy.)
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