India Still Prefered BPO Destination For Banks

Two more international banks send their back office jobs to India as a part of global growth strategy

For the global banking and financial services companies India is remains the prefered hot spot for back office operations outsourcing. In fact this year the market is expected to be upgraded with many investment banks pushing their research jobs here. Recent announcements by two International banks taking similar outsourcing strategy proves this point.
In the first annoucment UK-based Barclaycard has announced that its call centre in Manchester will close down in July this year. It plans to bring the work done there to its facilities in Mumbai and Delhi. This move is expected to affect about 630 people working in the current call centre in Manchester. Talking about this shift, , Antony Jenkins, Chief Executive, Barclaycard said, “Barclaycard’s business is becoming more global and to stay successful we must change how we operate to reflect this. Closing our Peterloo House site in Manchester centre is part of that process.” The offices in Mumbai and Delhi are expected to handle the operations done in the Manchester call centre including sales and customer service for UK credit card customers.

In another announcement National Australia Bank has decided to outsource its back office jobs to India. From mid year the Bank will send its processing, data-entry, mailing and other back office operations to the country. The financial institution already has about 100 people working from India on its back office operations. According to the Bank’s spokesperson Geoff Lynch, this move is to strengthen its front office activities at its branches across Australia.
Moreover major banks with existing back office operations in India like Deutsche Bank, HSBC, Bank of America are constantly upgrading their activites here as they still see India as a value add to their global growth plans. In fact, according to reports Deutsche Bank is expected to increase its Deutsche Bank move about 50 percent of its back-office jobs in sales and trading operation to India by the end of this year. With this the Bank will almost triple its number of staff. Besides basic back office jobs, India is also a being seen as a research service provider by these banks. For instance Deutsche Bank is also planning to increase its offshore research staff here in the country.
To go by market statistics India still remains a preferred destination. 2007 is the year when most of the investment banks are expected boost their offshore activities here almost by 30 percent, justifies the point.

RPO Is the Next Generation Of HR Services

With the costs of payrolls and payroll taxes, health-care and other expenses associated with full-time workers shooting up day by day, outsourcing has now become an essential solution for businesses of all sorts. Moreover, access to superior competency typically emerges as a motivator for outsourcing; the external service provider offers a degree of sophistication that in-house specialists cannot match. In a nutshell, outsourcing is resorted to with a view to reducing firm costs and achieving improvement in four key areas – quality, cost, speed and service. How does a company enhance these core areas during the recruitment process? The answer is outsourcing and transferring all or parts of the staffing processes to an external service provider through Recruitment Process Outsourcing (RPO) or Employee Process Outsourcing (EPO). It is a more specific department for HR personnel and a new subset of Business Process Outsourcing (BPO) and emerging as a key outsourcing demand from the clients.

As Pam Berklich, Global SME and thought leader for RPO Kelly Services Inc defines RPO, “In my experience, and in the world of true pure play RPO providers, this practice involves end to end responsibility for the recruitment/hiring process. There are really only two forms of RPO, namely the Enterprise RPO and Project Based RPO.” In the Enterprise RPO, a client organization decides to outsource their entire recruitment/hiring function for all hiring needs including all skill sets and all job families within the organization. Here the RPO partner becomes the seamless extension of the HR function and serves as the recruitment/hiring department. In the second type of RPO, a client organization decides to outsource certain job families and skills to the RPO partner, or it outsource the expansion of a client’s operations into defined geographies.

True RPO is not about outsourcing a piece or pieces of the recruitment process - it is taking full responsibility for the entire function. Therefore, it also becomes significant for an organization to know when and what parts of the recruitment process need to be outsourced. The organization needs to be aware of its requirement vis a vis business growth and expansion plans. As Shailja Puranik, COO, Xansa BPO points out," It is most appropriate to outsource when an organization has achieved stability and maturity of processes and looks to outsource those components that are well-defined, repeatable and reproducible."

Being a viable, strategic and cost effective solution, RPO has turned out to be a growing global trend. “RPO should along with its cost effective feature also be given its due importance for hiring the " right candidate from a wider pool of talent available," adds Rahul Goyal, CEO, Ma Foi, UK. The emergence of RPO solutions is growing at a very steady pace. No matter how you slice the share from the HRO market worldwide, it still remains substantial. The trends in growth vary on the basis of geographical location and the acceptance of outsourcing solutions within country cultures. Era, a recruitment industry body, estimated the size of the RPO industry to be around 6000cr for 2006-2007. However, as per Jacob Samuel, Associate Partner, Elixer Web Solutions, “This figure does not include the market size which gets added through overseas business and other recruitment related expenses.” This year the RPO market is expected to grow at 300% over the last year,” he added. “The predictions are not consistent. From most assessments there is a general agreement that the potential for this market is estimated at $20 billion by the end 2008. Not only this but India is predicted as the one of the fastest growing market trends for RPO (30% or greater annually) in the years ahead,” observed Berklich.

Talking about the market, Sunil Anand, Vice President, Datamatics Ltd, adds, “It would be $25 billion globally. But I cannot comment on the Indian market as it is still in the nascent stage.” Presenting almost the same view Puranik adds, “UK, US, Australia being the mainly English speaking countries will comprise around 10-15% of the outsourcing pie – a good enough size to consider as one of the niche areas of focus for India.” But as per the Goyal of Ma Foi, “Although at present India does not figure out in the global RPO market, the country, with its excellent skill set, developing infrastructure, along with a huge IT and labour pool, is expected to grow at a fast pace within in next three years.”

However, problems like lack of differentiation, labour shortages and competition among the candidates might act as deterrents to the growth of the Indian RPO market. Above all one of the biggest problems that RPO companies face is with the HR Manager and HR hirers from the organization. Most often its is difficult for an RPO vendor to explain and negotiate with the organization about the mechanism of hiring. So “the understanding of the RPO as an industry has to evolve in India," says Goyal. Highlighting the most common problems faced by RPO's, Berklich emphasized on educating the market on the benefits of RPO as well as its pitfalls. Puranik identifies talent management, knowledge enhancement, career progression opportunities as the top three challenges faced by the industry.

Since the demand far outstrips supply in this segment with an alarmingly increasing attrition rate and paucity of skilled candidate this shortage leads to immense poaching of talent in the industry per se. Moreover, RPO being a rather infant industry (less than 10 years), it is difficult to secure the experience and talent required to meet the growth demand of the expanding industry. “This business needs investment in training and upgrading of skills and strong HR activities,” opines Anand

According to a study across the nation, 21000 appointment letters were sent out in a particular month while only 8000 showed up on the joining date. This has turned out to be a tough challenge for the RPO industry as this adversely affects the Client business. The biggest threats to the industry are receptiveness to the concept, shortage of skilled recruiters, high investment business and internal resistance,” reiterates Samuel.

All in all, the most important qualities to look for in a full service RPO provider are flexibility, time to fill / speed and experience / sourcing expertise including the experience track record in hiring large volumes which is very different from the adhoc hiring. Last but not the least, is of course the global reach of the recruitment provider and quality of candidates recruited so far. Today, almost all industry verticals require RPO services and it is even beneficial for companies who operate in the niche segments.

Till date, RPO services have been chiefly employed by retail, pharmaceutical and health care, financial and insurance, manufacturing and aviation industry. The trend seems to get hold of not only big organization but also the small or mid-sized organization. As the trend goes, the managed recruitment services or the recruitment process outsourcing is expected to acquire the centre stage this year. As an RPO largely affects an organization’s business growth and success, the later should have a detailed understanding of the concept and also of the expenditure for the recruitment process. This helps them decide which processes are to be outsourced and which RPO is best suited to the unique requirement of the company.

Trends in Indian ITES-BPO

Trends in Indian ITES-BPO

In FY 2003-04, Indian ITES-BPO progressed in the third phase of industry volution - highlighted by the greater degree of depth, specialization and competition. As the supply-side dynamics matured, so did the demand.

The US presidential election campaign in November 2004 seems to have laid to rest the vociferous backlash towards offshore outsourcing - as the US electorate voted in a seemingly pro-outsourcing candidate.

Signs of industry maturity, witnessed over the last year, were typified in the type of contracts entered, the proliferation of service offerings, the manner of resolving industry-wide concerns / issues such as managing attrition and building scale, and the pricing and engagement models dopted as the vendor landscape further consolidates.

Continued market consolidation
The last eighteen months have been a period of significant market activity for the ITES-BPO sector in India. Coupled with the growing stock of firms expanding their offshore initiatives in India, the wave of consolidation as several large M&A deals were scripted in the industry. The following Table recaps the key deals executed over the last eighteen months.

High levels of absorption
The rapid growth of Indian ITES-BPO in the last eighteen months has contributed to a continued mismatch between the demand and supply of experienced resources in the industry. Consequently employment generation and attrition levels remain high.

Indian ITES-BPO added approximately 73,500 jobs in FY 2003-04 – with the number expected to double in the current fiscal. Even so, demand for experienced professionals outpaced their supply and attrition levels in the industry remain between 25-40 percent.

Vendor maturity - managing people risk
In spite of the relatively high people risk - attributed to the high turnover and attrition - Indian companies displayed increasing maturity as companies deployed innovative employee retention strategies. These included - employee recognition schemes, career planning services, educational guidance and assistance and a greater emphasis on improving the quality of work-life.

As the companies rapidly ramp up scale, they are increasingly facing a shortage of mid-level executives to manage the growth. As a result there is tremendous pressure to pull-up the above average performers and prepare them for the next level of leadership. The opportunity to rise rapidly in this industry, on the basis of exhibited performance, is a great motivator for the industry workforce.

Maturing pricing and engagement models
The maturity of the third-party model has brought with it a variety of pricing and engagement models. The most commonly adopted pricing models include:

1. Per-unit time / variable costing (per seat, per hour, etc.): This is the most common pricing model adopted by Indian ITES-BPO companies. The client guarantees a minimum amount of business and is billed on a per hour or per seat basis
2. Per seat or full time employee (FTE) per month: The client guarantees a minimum amount of business for a number of FTEs on a monthly basis
3. Activity based billing: Billed by the volume of activity (i.e. per call, per statement, per line transcribed)
4. Gain-share models: Billing determined based on quantifiable value delivered (i.e. success rate, conversion ratio, etc.) - based on mutually agreed parameters.
5. Hybrid-pricing models: Combination of two or more models. Typically incorporate a fixed volume rate plus a marginally higher rate for peakload absorption.

Onshore expansion to strengthen global delivery capabilities
While the leading global services firms scramble to ramp-up offshore operations in India, Indian vendors are steadily expanding their onshore presence.

According to Gartner, Indian ITES-BPO companies are acquiring companies in the U.S. and other locations with several objectives. These include access to a new market beyond just a toe-hold, with ready resources, clients and revenues, access to a new set of skills or domain and process expertise in the target market, access to a new technology or intellectual property and also greater credibility with target clients, by having a strong local presence beyond just a sales office. This growing trend further highlights the transformation of offshore outsourcing to global sourcing.

source nasscom

pros & cons of outsourcing

Third Party Service Providers (TPSPs)

• Usually TPSP already has expertise and experience with other clients in similar business lines.
• Very competitive pricing / flexibility to assess various TPSPs
• No infrastructural / capital investment.
• Payback period very less (usually between 6 months to a year).
• Flexibility to source multiple TPSPs.
• Flexibility to scale up and down business relationship.
• Can exit from one relationship and move to another .
• Retains decision-making, therefore relationship with TPSP is clear (fee-based, quality-based); no staff backlash.
• As TPSP works towards a profit there is more business commitment.
• Customised solutions ensure data security and safety.

Captive centres

• Build expertise from scratch by redeploying resources. Latter option more expensive.
• Unit costs higher.
• High capital investment.
• Payback usually between 3 and 5 years.
• Committed to bringing in economies of scale, hence the need to establish a sufficiently large centre.
• Committed resources reduces such flexibility, else training costs could shoot through the roof.
• No exit possible without incurring high costs.
• May or may not retain decision-making. Possibility of backlash from senior management personnel.
• Captive units are usually cost centres.
• Long-term strategy looks for establishing centres to first move work as-is, and save costs first.

pros & cons of outsourcing to third party vendors

Advantages

• Focus on core business issues.
• Benefit from best-of-breed solutions.
• Better quality at lower costs.
• Better process maturity, resource flexibility and economies of scale.
• Flexibility in deploying new technology.
• Quick wins with outsourcing.

Disadvantages

• Burden of excess capacity or challenge of insufficient capacity is done away with.
• High unit personnel cost.
• Tight business margins.
• Not enough financial muscle to sustain very tight payback periods.

pros & cons of outsourcing to a captive centre

Advantages

• Securing data is less complicated.
• Capture margins that would otherwise go a TPSP.
• Decision making authority contained within the organisation.
• Tighter management control.

Disadvantages

• Expensive specialist skill in host countries.
• Compliance and legal restrictions.
• Unavailability of skilled manpower due to market stagnation.
• Requires considerable effort in terms of management's time and attention to establish

Source: neoIT

Introduction to BPO

BPO [Business Process Outsourcing] has been the latest mantra in India today. As the current sources of revenue face slower growth, software companies are trying new ways to increase their revenues. BPO is top on their list today. IT services companies are making a quick entry into the BPO space on the strength of their existing set of clients.

The philosophy behind BPO is specific, do what you do best and leave everything else to business process outsourcers. Companies are moving their non-core business processes to outsource providers. BPO saves precious management time and resources and allows focus while building upon core competencies. The list of functions being outsourced is getting longer by the day. Call centres apart, functions outsourced span purchasing and disbursement, order entry, billing and collection, human resources administration, cash and investment management, tax compliance, internal audit, pay roll...the list gets longer everyday. In view of the accounting scandals in 2002 [Enron, WorldCom, Xerox etc], more and more companies are keen on keeping their investors happy. Hence, it is important for them to increase their profits. BPO is one way of increasing their profits. If done well, BPO results in increasing shareholder value.

Typically, a customer calls the call center [usually a toll-free number]. After pressing numerous numbers [1 for English, 2 for Spanish, 3 for bank balance!] the operator will answer your query by accesing the database. Call centres address sales support, airline/hotel reservations, technical queries, bank accounts, client services, receivables, tele marketing, market research.

If a bank shifts work of a 1000 people from US to India it can save about $18 million a year due to lower costs in India. According to Mckinsey, giant US pharma firms can reduce the cost of developing a new drug, currently estimated at between $600 million and $900 million by as much as $200 million if development work is outsourced to India.

Outsourcing is not new - it has been a popular management tool for decade. One can safely say outsourcing has evolved :-

• 1960's - time-sharing
• 1970's - parts of IT operations
• 1980's - entire IT operations
• 1990's - alliances/tie-ups
• 2000's - IT-enabled services

India has one of the largest pool of low-cost English speaking scientific and technical talent. This makes India one of the obvious choice to outsource to. Dell, Sun Microsystems, LG, Ford, GE, Oracle all have announced plans to scale up their operations in India. Others like American Express, IBM and British Airways are leveraging the cost advantage India has to offer while setting up call centres. Several foreign airline and banks have too set up business process operations in India. Indian revenues from BPO are estimated to have grown 107 per cent to $ 583 million and this particular area employs 35,000 people in the year ending March 31, 2002.

Many European and US companies have realized that they should focus on their main business and outsource their Human Resource Department, accounting department etc. Bingo! it is here exactly India fits in! Today US corporations have embraced BPO wholeheartedly.

Managed Care Companies, which is more popularly known as Healthcare payers, are increasingly outsourcing business processes due to changing and challenging business environment and technological and legislative changes. There is a good opportunity for Indian BPO vendors in this space. BPO vendors will need to have good domain knowledge, process know-how and competence with technological solutions to cater to these Managed Care Companies.

The Future of Outsourcing

Business Process Outsourcing (BPO) will include IT outsourcing and mainstream BPO expenditure is likely to grow worldwide by 10 per cent a year from $140 billion in 2005 to over $220 billion by 2010. (Source: Logica CMG study)

The industry is rapidly growing and maturing and India has established itself as a major outsourcing hub.

India is the world’s favorite outsourcing destination

India's share of the global offshore outsourcing market for software and back-office services is 44%. According to the National Association of Software Companies (Nasscom), India’s premier trade body of the IT software and services industry, technology and IT services exports in India were worth $17.2bn (£9.5bn) in the year ended March 2005, a rise of 34.5% over the previous year. A further expansion of 30% in exports is predicted in the next twelve months, to reach $22.5bn. The US accounts for 68% of Indian exports.

Current outsourcing trends worldwide

1. Outsourcing in traditional areas like customer care, financial services, manufacturing, IT, ITES is growing.
2. Large multinational companies are investing in captive BPO units in supplier countries in multiple locations, to reduce risk and control quality.
3. Outsourcing is becoming more sophisticated. Customers are looking for business process excellence, speed to market, improvement in quality, benchmarking to world-class standards. CEOs are involved to ensure the long-term success of strategic offshoring decisions. On their part, suppliers understand that they must compete globally and that outsourcing will play a more transformational and strategic role for the client.
4. There is increasing global competition and pressure on margins from emerging lower-cost outsourcing destinations.
5. Risk factors for outsourcing like terrorism and war, disaster and disease make contingency plans a necessity.
6. The IT industry will see roughly 10 to 15% of its jobs move overseas during the next ten years, inviting more political debate.
7. For the past two decades, China has been growing at an astounding 9.5% a year and India by 6%. They are impacting the global economy and leading the outsourcing revolution.

Future outsourcing trends worldwide

1. Outsourcing expenditure will continue to rise.
2. More countries will find outsourcing attractive, creating a multi-polar world.US and UK, the European Union markets will expand their offshoring programs, while Japan will increasingly look to China for its needs. Following the lead of the
3. Customers will take greater control in driving and designing deals.
4. The interlinking of the supply chains brought about because of outsourcing will create stability as companies will put pressure on governments to avoid wars.
5. Risk factors and unexpected occurrences like war, terrorism, disease, natural disasters and economic upheavals can throw a wrench in the works.
6. The rising price of oil will put increasing pressure on companies to both utilize technology and outsource to remain profitable.
7. The rising price of oil will cause oil consuming countries like the USA to be less competitive resulting in more outsourcing to India and China.
8. India will show excellence in Services that require advanced English like Knowledge Process Outsourcing (KPO), Content and Medicine.
9. Political backlash over outsourcing is likely to lessen over time as economies strengthen and companies continue to reap the benefits of offshoring.
10. Technological power will shift from the West to the East as India and China emerge as big players in the global outsourcing market. The two countries have the size and weight to transform the 21st global economy.
11. By 2015 China will be No. 1, India No: 2 in the global top five outsourcing destinations.
12. Vendor focus will shift from basic skills, costs and processes to domain knowledge, transition challenges, change management, HR issues and governance.
13. Regional outsourcing hubs will develop as companies will take strategic near-shoring initiatives to minimize risk and leveragecultural and linguistic compatibility. The supplier countries are in the same time zone as their customers.
14. The large diverse Indian companies will face stiff competition from new focused smaller companies. Because these companies are able to focus and become excellent in one are they will be able to provide a higher level of service. In 2007 there will be a flood of companies targeting niche services.

Near-shoring as a business strategy

India can collaborate with other countries to leverage local knowledge of the business environment and language skills while providing its domain knowledge and technological expertise for successful outsourcing. For example, TCS has a Latin American arm based in Mumbai, India which serves an insurance client in Chile with a center in Uruguay as a near-shore location. Outsource2india has a collaboration with a company in NE India that leverages the unique talents of the people of this region.

Opportunity areas

Today more industries are where IT was in the 1990’s - knowledge based. Knowledge Process Outsourcing (KPO) may soon be the biggest revenue grosser in India as BPO companies move up the value chain in their service offerings. This includes:

1. Research and Development
• Product Innovation - Companies are going beyond basic research to invest in innovation and new product development. Companies that have invested in R&D in India are Cisco Systems, Motorola, Hewlett-Packard, Google General Motors Corp. and Boeing Co among others.
• Co-development- In pharmaceuticals, India has the opportunity of co-development and ownership of new patented drugs through drug research, clinical trials and manufacturing. Indian pharma major Ranbaxy has an agreement with MNC GlaxoSmithKline to commercialize compounds they develop together.
2. Legal Outsourcing
   India ’s large pool of qualified English-speaking lawyers with experience in the British legal system can offer paralegal support, legal support and patent services. A few Indian companies affiliated with American law firms are now able capture a tiny piece of the American market. They are now doing legal research at very high rates by Indian standards but yet 50% below typical American rates.
3. Engineering Outsourcing
   India can provide high-quality engineering services in the fields of:
• Mechanical & Electronic engineering - analysis and design , embedded software
• Plant Design, Process Engineering
• Plant Automation Services
• Enterprise Asset Management and OEM solutions
4. Remote Infrastructure Management Services
   India can offer management services for IT infrastructure, applications operations, IT security and maintenance. This sector presents great potential through large-value multi-year contracts
5. Accounting Services
   We are in the initial stage where payroll processing services and some accounting is being done for large American companies. This trend will continue and soon a full range of accounting and tax services will be provided by Indian companies.
6. Outsourcing opportunities for India exist in other fields like Financial Research, content development, medical writing: animation, film, publishing, web services; Human Resource outsourcing: recruitment, training, Education, Nanotechnology and many others.

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Hi Friends,
This is yogesh from Chennai, India. I've been in this Industry for some time now and thought of having an open channel of communication with people in the same industry. With this idea in mind, have created this blog titled BPO market to enable people from different parts of the world, who are involved in a similar industry, to share their views, thoughts and knowledge about this field.Hope to have all your support.

This is the right place for the people in Chennai to discuss about the latest happenings in BPO.A blog site dedicated for entrepreneurs and small business owners who are interested in BPO Industry.

* know about BPO market
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..Thanks,Yogesh