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