Mohit Sewak

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Business Challenges for KPO/ BKO/ BPO in India

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High Marketing Costs:

BPO industry consists of large as well as small firms (with less than 300 employees). The major weakness of these smaller BPOs is the high marketing costs. These costs are mostly incurred while searching for new market opportunities.  Further, a need to have onsite offices adds to the costs. These costs prohibit emergence of new BPOs.

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Smaller BPOs have explored subtracting of work from larger BPOs as a revenue alternative. However, unlike manufacturing sector, a lack of onsite presence of the firms coupled with quality concerns of subcontracting of work add to challenges faced by such organizations.

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High Attrition rate and Training Costs:

Higher attrition rate and poaching are other weaknesses of the industry. Though India has graduates with a good command on English but it is difficult to find skilled and qualified personnel. This paucity of skilled workers adds to recruitment and training costs. Further attempts towards poaching of qualified personnel have increased.  According to NASSCOM, this problem is seen as a major factor is decreasing global competitiveness of India’s outsourcing industry. NASSCOM estimates a demand-supply gap of trained personnel to the tune of 206,000 in 2010. This lack of qualified personnel has lead to increase of salaries of trained professionals due to which the country is losing its low-cost advantage. Cost advantage of off-shoring to India has reduced from 1:6 to 1:3. This talent crunch has lead to increased poaching as can be seen by significant movement of middle and senior management level personnel between jobs.

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Lack of infrastructure:

Lack of infrastructure facilities (particularly in Tier-2 and Tier-3 cities) such as transportation, power, and internet bandwidth have created strong bottlenecks in the industry’s growth. BPO/BKO industry has been unable to grow into Tier-2 and Tier-3 cities. Movement of business from a Tier-1 city such as Bangalore to a Tier-2 city such as Mangalore can save up to USD 0.4 per year for a 1000 employee company in terms of employee salaries.

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Nature of work:

Physical strain from work, unconventional working hours, and detrimental effects on personal life are other factors that have lead to decreased attractiveness of outsourcing services among working professionals.

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Ease of doing Business:

Launching a business in India is another challenge that is faced by the industry. The long approval processes in India take twice than it takes in China, and 12 times than in Singapore. Such lag of time can lead to loss of competitive advantage of India’s outsourcing industry.

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High Costs of Telecommunications:

Though India’s telecommunication costs have reduced but these costs are still higher than those in most the competing countries. Telecommunication facilities are rapidly getting liberalized in countries such as Philippines, and China.

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Future market opportunities for

The Indian BKO/ KPO/ BPO Industry

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The achievements to date of Indian BPO industry are impressive. However, there is significant headroom to tap the addressable market opportunity from exports and from serving the domestic market. A bottom-up analysis shows a total export BPO market opportunity of US$ 220-280 billion by 2012. The domestic Business Process Outsourcing market provides an additional US$ 15-20 billion opportunity for the industry by 2012.

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The addressable market opportunity for Indian BPO industry shows that traditional areas of focus will continue to be large, but several other areas also have significant untapped potential for buyers and providers alike.

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Market opportunity by verticals:

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There is a large market opportunity not only for established industry verticals like Banking, Insurance and Manufacturing, but also for buyers and providers in many other emerging verticals. The Banking & Capital Markets, Insurance and Manufacturing verticals together constitute almost 70 percent (US$ 160-190 billion) of the total US$ 220-280 billion export market opportunity over the next five years.

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However, emerging verticals such as Technology, Telecom and Travel & Transportation verticals also provide opportunities in excess US$ 10 billion by 2012. Other verticals such as Media & Publishing, Pharmaceuticals & Life Sciences, and Energy & Utilities too represent significant untapped opportunity.

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Market opportunity by type of services:

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Another way to look at the total export market opportunity is by type of services demanded — vertical-specific BPO services and horizontal BPO services.

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Over the next five years, vertical-specific BPO services provide larger market opportunity (60 percent; US$ 145-175 billion) compared to horizontal BPO services. Horizontal BPO services, which currently account for a greater share of services offshored to India, also provide a significant addressable market opportunity — a total of US$ 75-105 billion spread across traditionally mature areas like CIS and F&A as well as emerging segments like HR, Knowledge Services, and Procurement Services.

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Market opportunity by nature of work:

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Buyers and providers need to expand their relationships into middle-office and front-office services, which together represent an opportunity in excess of US$ 100 billion by 2012. However, back-office processes are expected to remain the largest opportunity areas over the next five years (providing more than 50 percent of the overall market opportunity).

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Back-office opportunities extend beyond traditional SG&A (e.g., F&A, HR) functions; services such as transaction processing activities in Banking and Capital Markets, investment operations in Capital Markets, supply chain and logistics support for the Manufacturing, Retail, and Travel industries are some examples of high-potential back-office services.

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Market opportunity by source geography:

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There is significant BPO opportunity for buyers and providers across geographic markets. While North America is expected to contribute roughly 70 percent of the total market opportunity for the Indian BPO industry, both providers and buyers should increasingly look at exploiting opportunities in the UK, Continental Europe and Asia Pacific. English-language based business processes from these geographies represent a huge market opportunity of US$ 45-75 billion by 2012. Furthermore, domestic Business Process Outsourcing market (in verticals such as, Banking, Retail, Insurance, Media, Telecom, and Government) provides an additional US$ 15-20 billion opportunity for the industry.

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It is possible for Indian BPO providers to maximize the available market opportunity by developing a stronger near shore presence and distinctive value propositions along with strengthening language and cultural capabilities.

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