Indian BPO Industry is slowly loosing its advantages.

1. Analysis & Outlook
Indian BPO Industry losing its sheen & continue to face tough challenges in 2013
With diminishing cost arbitrage and margins, Indian BPO players are struggling to keep up the
growth and last four years (2008-2012), CAGR for the BPO sector has been slow at 12.47%
compared to India’s IT services exports, which posted a 17.23% growth during the same period.
With reducing client spends and IT budgets Indian BPO industry is further expected to face
tougher year in 2013. Another important reason is that India’s cost advantage as an offshoring
destination has dropped by 30-40% and also with high attrition rate (40%-50%) as companies are
finding it difficult to hold on to employees who were earlier attracted to the industry but
presently resenting the BPOs due to the lack of career growth opportunities and falling
compensation, perks, bonuses and benefits, industry is facing problems in fueling growth. There
has been significant pressure on the margins too due to wage inflation where in the salaries of the
employees have risen fast, foreign exchange losses as most of the revenues are dollar revenues
and companies failed to hedge the currency risks and the Indian rupee had been very volatile
ranging from `43 to `57.15.Companies like general motors who initially outsourced majority of
their business processes and IT processes to India have recently announced to move back the
outsourced jobs back to United States.
According to The Hackett Group, offshoring of jobs to India will be declining from 2014, and
will reach the end of its lifecycle in eight years, as the traditional model of US and European
companies moving finance, IT, and other business services jobs offshore will reach its maturity
and there will not be manyjobs left out with the companies to outsource to India.According to
Nasscom, software services are the fastest-growing segment with 19% growth in FY12, while
BPO exports grew at 12% over last year. “Gone are the days of over 30% growth for the BPO
sector, going forward it will be in low single-digit,” says TPI’s Pai.The rise of other low cost
destinations like Philippines and near shore destinations like Brazil, Argentina for United States
and Poland for Europe have been successful in attracting outsourcing business through quicker
response time, better technical support and near-shore advantages. Despite the low cost
Rajesh Prabhakar Analyst Bio @ http://itbizcharts.blogspot.com/

2. Analysis & Outlook
advantages these low cost locations cannot match India in terms of economies of scale, large
pools of skilled talent and workers, experience and technical knowhowand ability to deliver large
scale projects. But most of the Indian BPO vendors are not agreeing with the Hackett Group
view that Indian BPO will be reaching maturity and they are focusing on improving their product
and service offerings and move up the value chain.
Indian BPO vendors like Genpact, WNS, Infosys BPO, TCS BPO, HCL Tech BPO, Aegis, etc.
are struggling to keep up their revenues and margins. Industry leader Genpact had a very bad
Q32012(despite 14.3% increase in revenues net profit impacted by "foreign exchange re-
measurement loss and expenses related to special cash dividend") and the company highlighted
the volatile economic conditions and clients cutting down budgets but still indicated that it will
expect full-year revenues of $1.86- $1.90 billion, and adjusted operating income margin of 16-
16.5% in 2012. WNS which earlier had tough time in keeping up growth was able to attain a 6-
7% organic growth and guided double digit growth for 2013 as the company has verticalized
their services in domain and have adopted technology-enabled non-linear modelfor their service
offerings. Not only WNS but most of the BPO players in India like Genpact, etc. are moving up
the value chain by focusing on Analytics, Social Media, Consulting, Mobility and Cloud
computing to boost up margins. Products and Platform based offerings are being developed and
aggressively marketed to clients as the Indian BPO vendors are looking to increase nonlinear
revenues that are revenues independent of headcount rise. Outcome based pricing models are
also being adopted too by Indian BPO vendors despite significant risks and most of the BPOs are
targeting 30% revenues from Nonlinear outcome based models in next five years.
Generally BPO is not a high value work mostly clerical type of work which is monotonous and
repetitive. BPO is an intense operational game and there is severe competition between the
Indian vendors and the multinational vendors like IBM, Accenture, etc. which has led to
significant pricing where vendors cannot afford to rise prices and are facing severe margin
pressures. There is minimum difference between the service offerings of the various vendors
both Indian and Multinational, and the Indian BPO vendors could not expand their service
offerings sticking with the low end work and not moving up the value chain to more high end
work where they can charge more prices and increase their margins and the Indian BPO industry
could not scale up its size. “Today none of the standalone BPO firms are of significant size. They
are mostly in the $350-million range, expect for one or two like Genpact,” Sid Pai, partner and
MD, TPI India.But the Indian BPO vendors have realized this fact and they have been investing
significantly over the past few years in the development of products, platforms, new service
offerings, and emerging technologies like cloud computing, mobility, analytics and social
media.Multinational BPO players like IBM, Accenture, Dell, Xerox, Cap Gemini, etc. are
expanding their BPO operations in India and other Low cost destinations like Philippines,
Poland, etc. to offer more services to their clients and reduce costs.
“BPO business has become a big-guy game. Smaller players with niche competencies will get
acquired. Like in analytics space, every day you hear firms getting acquired by larger firms. It is
Rajesh Prabhakar Analyst Bio @ http://itbizcharts.blogspot.com/

3. Analysis & Outlook
a very consolidated game and a big player’s market,” says Genpact’s senior VP ShantanuGhosh.
Accordingly there has been consolidation in the Indian BPO industry like Firstsource Solutions
being acquired by Kolkata-based power utility company CESC for about R640 crore. According
to industry reports, the Essar Group backed Aegis and WNS are looking for PE funds to scale
their businesses. Recently, PE major Bain Capital picked up a 30% stake in Genpact for
$1billion. Infosys bought Australia based sourcing and category management services firm -
Portland Group Pty Ltd for $37Mn. Indian BPO has moved beyond “bread and butter” voice and
transaction processing and is increasingly looking for higher value-adding activities like KPO
(Knowledge Process Outsourcing), which comprises legal research, advisory and consulting
services among other offerings.
Genpact acquired Triumph Engineering, which provides engineering and technical services to
aviation, energy, and oil & gas industries, Atyati Technologies, a technology platform provider
for the rural banking sector in the country, and Accounting Plaza, a provider of finance and
accounting, human resources services and ERP services in 2012. WNS has acquired South
Africa-based Fusion Outsourcing Services in 2012 for £10 million Fusion provides outsourcing
services including contact centre, customer care and business continuity services to both South
African and international clients and would look at acquisitions of $5-20 million this year.This
clearly shows the Indian BPO vendors are acquiring companies for both the revenue growth and
for adding skills and capabilities to increase their service offerings.Most of the Indian vendors
are sitting huge cash reserves which they can utilize for acquisitions. Overall there is tough year
ahead for the Indian BPO vendors in 2013 and they need to prepare themselves for this by
aggressively improving their products and services offerings and also look for increasing their
nonlinear and outcome based revenues thus moving up the value chain.
Rajesh Prabhakar Analyst Bio @ http://itbizcharts.blogspot.com/