BUSINESS PROCESS

OUTSOURCING(BPO)
1.

INTRODUCTION OF THE INDUSTRY

Business process outsourcing (BPO) is a form of outsourcing that involves the contracting of the
operations and responsibilities of specific business functions (or processes) to a third-party service
provider. Originally, this was associated with manufacturing firms, such as Coca Cola that outsourced
large segments of its supply chain.. In the contemporary context, it is primarily used to refer to the
outsourcing of services.
BPO is typically categorized into back office outsourcing - which includes internal business functions such
as human resources or finance and accounting, and front office outsourcing - which includes customerrelated services such as contact center services.
BPO that is contracted outside a company's country is called offshore outsourcing. BPO that is contracted
to a company's neighboring (or nearby) country is called nearshore outsourcing.
Given the proximity of BPO to the information technology industry, it is also categorized as an information
technology enabled service or ITES. Knowledge process outsourcing (KPO) and legal process
outsourcing (LPO) are some of the sub-segments of business process outsourcing industry.

2. BRIEF HISTORY
In 1968, an Indian government working group on computers said, Software development would seem to
have a very high employment potential in a country like India the value added in the case of software,
is very large. Ironically the same report framed a policy of self-sufficiency that arrested the development
of the IT industry. Restrictive rules and regulations imposed severe restrictions on imports of hardware
and software. Even IBM quit the country in 1978 due to laws that disallowed foreigners from owing more
than 40% equity stake in an Indian firm sanity returned to the system only in 1986 with new policies which
liberalized access to software and associated hardware. The software technology parks of the 1990s led
the way to opening newer technology domains such as Business Process Outsourcing agencies. Indias
tryst with process outsourcing began in the mid 1990s with GE setting up a Business Process
Outsourcing facility in Gurgaon. Some of the other early birds were companies such as American Express
and British Airways.
Initially low-end work such as data entry and call centre activity was outsourced to India. With increasing
confidence of the companies, value added work such as processing of accounts and other non-core
own back office operations in India. Banks such as Citibank, HSBC and Standard Chartered and other
companies such as Dell and Hewlett Packard set up their own captive operations. Indian software majors
such as Infosys, Wipro and Satyam were a bit late to join the BPO party. The scene has since shifted to
transaction processing.

3. REGULATORY FRAMEWORK

A. DATA PROTECTION LAW

B. SARABANES OXLEY ACT

4. KEY COMPANIES/COMPETITIORS

5.VARIOUS SERVICES AND THEIR PROFILE

An organization entering into contract with another organization
to operate and manage one or more of its business processes

BASED
ON
VOICE

BASED
ON
LOCATIO
N

It is the delegation of one or more of IT intensive business processes to an

external provider, which in turn owns, manages, and administers the selected
processes based on defined and measurable performance criteria.
BPO as per the work performed can be classified as VOICE BASED, which
includes customer related services such as technical support, marketing etc. and
NON-VOICE, which includes internal business operations
ON-SHORE: BPO that is contracted inside a companys country.
NEAR-SHORE: BPO that is contracted to a companys neighboring country.
OFF-SHORE: BPO that is contracted outside a companys country.

6. GROWTH, OPPRTUNITIES AND EMPLOYMENT STATUS OF BPO

INDUSTRY

FUTURE LOOK: As per the study conducted by NASSCOM Indian

BPO industry is growing at a CAGR of 28%. If it continues with this
pace it will reach to USD 30Billion by 2012 but it is expected that it
will touch USD 60 Billion because of the many advantages it has over
the competitors.

While the other study of NASSCOM predicts the Indian BPO market
will reach USD 225 Billon by 2020.
So it can be represented as:
2012=USD 60Billion E.
2020= USD 175 Billion (Exports) +USD 50 Billion (domestic) .
So 2020= USD 225 Billion.
E= Expected.
Out of this total global market Indias share is estimated to be 5-6%, currently
as shown by the following diagram. US have the largest share of 52%
followed by UK which commands 20% of the BPO pie. GARTNER predicts
that Indias share in the Global BPO market will get double by 2010i.e. it will
reach to 10% of total BPO market.

So the greatest pool of graduates is moving towards the BPO industry thereby
decreasing the unemployment and developing the economy by utilizing the
available pool of talent.

Revenue
As shown in figure 1, Indian IT-ITES industry revenue is estimated at USD 129.5 billion in FY2015-16 as
compare to USD 118.8 billion in FY2014-15, registering an increase of around 9.0%. The overall industrys
growth of this sector over the last five years is given in the table below.
IT ITES Industry Revenue Trends (in USD billion)
Year/ Description

2011- 12

2012- 13

2013- 14

2014- 15

Exports

68.8

76.5

87.3

97.8

Domestic

19.0

19.2

19.0

21.0

Total

87.8

95.7

106.3

118.8

Exports
As shown in figure 2, IT-ITES exports is estimated to gross USD 107.8 billion in FY2015-16, growing by
9.0% over FY 2014-15 and contributing nearly 83% of the total IT-ITES revenues (excluding hardware). A
combination of solutions around disruptive technologies such as SMAC (Social media, mobility, analytics and
cloud), artificial intelligence, embedded systems etc. have become the life-force of the industry.
During FY 2015-16, IT services exports (excludes BPO, Engineering, R&D and Software products) is
expected to register an y-o-y growth of over 10.3%, generating exports of USD 61.0 billion, driven by
collaboration, communication, business intelligence projects, and integration of SMAC services with
traditional offerings. During FY 2015-16, ITES/BPO exports are likely to be USD 24.4 billion with a growth
rate of ~8.4% over FY2014-15. Software products and ER&D segment is estimated to generate exports of
US$ 22.4 billion in FY 2015-16 with y-o-y growth rate of ~12%. The domain specific solutions focusing on
convergence, customization, efficiencies and localization, M2M technology and newer technologies around
SMAC are playing a significant role in driving the growth of ER&D and software products. With over 3,100
firms, India is emerging as a hotbed for software products with SMAC and a supportive ecosystem creating
successful stories.
Segment wise export Revenue Trends in IT ITES Industry (in USD billion)
Year/ Segment

2011- 12

201213

2013- 14

2014-15

IT Service

39.9

42.9

49.2

55.3

61.

ITeS-BPO

15.9

18.3

20.4

22.5

24.

Software Products, Engineering Services, R&D

13.0

15.3

17.7

20.0

22.

Segment wise export Revenue Trends in IT ITES Industry (in USD billion)
Year/ Segment
Total IT-ITeS

2011- 12
68.8

201213
76.5

2013- 14
87.3

2014-15
97.8

As per figure 3, the IT Services exports accounts for the largest share of 57.76 %; BPO exports contributing
21.62 % followed by ER&D and software products that together account for 20.62%.

IT-BPO Revenue Share (Year 2015-16)

107

Domestic Market
As shown in figure 4, Domestic IT-ITES revenue (excluding hardware) is estimated to reach INR 1408 billion
in FY2015-16, as compared to INR 1289 billion in FY2014-15, a y-o-y growth of ~9.22%. During FY2014-15,
domestic IT services growth is likely to be at 9.67% as large enterprises exhibit cautious spending pattern;
driven by technology upgrades in BFSI, telecom and State Governments, and compliance of MIS
investments. The domestic BPO services growth is estimated at ~8.72% in FY2015-16, driven by demand
from select customers reverting to outsourcing business processes, especially from the BFSI, automotive
and retail sectors. Domestic software products is estimated at 8.22% due to increased demand for retail,
healthcare, education, manufacturing (vertical-specific) and SMAC (Social media, mobility, analytics and
cloud) - based solutions.
Segment wise Domestic Revenue Trends in IT ITES Industry (in INR Crores)
Year/ Segment

2011- 12

2012- 13

2013- 14

2014- 15

2015- 16(E

IT Service

58907.6

66300

72721.6

81662

89562

ITeS-BPO

14849.1

17500

19593.8

21490

23364

Software Products, Engineering Services

18009.6

20500

22468.8

25788

27907

Total IT-ITeS

91766.4

104700

114784.2

128940

140833

Source: Nasscom, E: Estimate

7. PERFORMANCE OF FINANCE IN BPO INDUSTRY

SEGMENTS IN BPO FINANCE

1. COMPANIES IN BANKING, FINANCIAL SERVICES

AND INSURANCES (BFSI).
If they outsource finance, it is their core business that they are outsourcing. In fact, finance
has been at the forefront of outsourcing General Electric, American Express and Citi Bank
led the initiative in India. The reason is that their customer-facing front office is in high cost
locations. But there are functions, which, if delivered at low costs, would have a major
impact on their balance sheets.

2. NON-BFSI COMPANIES.
From them, the finance function is important as it helps the rest of the organization runs
smoothly. So such a company will outsource functions likes sales orders processing,
accounts payable, receivable managements, balance-sheet management and cash
management. For instance, a US based industrial major currently evaluating finance BPO
companies in India has 850 employees looking at finance at a total annual cost of $110
million. Global airlines also, under cost pressures, are looking India to outsource revenue
accounting and sales audit functions. These include British Airways, Australian Airlines,
Malaysian Airlines and Qatar Airways.

FINANCIAL BPO PROCESSES BEING OUTSOURCED:

Three types of financial processes are being outsourced to India. These
include:
TOP END
ACTIVITIES

1.

(AROUND 10%)

MIDDLE END
ACTIVITIES

2.

(AROUND 25%-33%)

3.

CLERICAL LOW END

ACTIVITIES
(AROUND 65%-75%)

REASONS FOR OUTSOURCING FINANCE AND ACCOUNTING

There are many reasons which lure a business to outsource its finance and
accounting operations. These are:

1. EXPECTATION TO REDUCE COST:

Study conducted by Deloitte suggests that the firms achieve 39 percent cost
savings from moving operations to low-cost centers.

2. STANDARDIZING THE FINANCE AND ACCOUNTING PROCESS:

Companies on their own do not have the ability to standardize finance & accounting
either because of a lack of specialized resources, scale or simply because this is not their
prime area of focus. This is why it makes sense to outsource it. And as the back office
becomes more standardized, in particular the accounting functions, even bigger cost
savings can be seen.

3. OUTSOURCING DISASTER RELIEF:

Organizations have become extra cautious after the WTC disaster and want to have
protection against disasters. Finance & accounting activities constitute a major part of the
activities of all corporate and as such even organizations not having finance and
accounting as their core processes want to safeguard their finance & accounting
processes. For example, after the collapse of the WTC the Twin Towers Fund (TTF) gave
the task of handling the accounting functions to outsource Partners International (OPI),
a BPO firm specializing in finance and accounting. OPI's Bangalore office handles most
of TTF's accounting work. Source documents are scanned in New York and sent to
Bangalore by remote connection; the Bangalore office handles 95 percent of document
and transaction processing.

4. REAPING THE BENEFITS OF ECONOMIES OF SCALE:

Outsourcing finance and accounting processes to cheaper locations where manpower and
infrastructure is less costly gives the outsourcing companies the advantage of economies
of scale. Moreover working hours can be increased in locations such as India by
increasing the number of shifts.

5. BENEFITING FROM THE TECHNOLOGY AND EXPERIENCE OF

THE SERVICE PROVIDER:
The service gives cutting edge technology and has expertise in specific verticals. Hence it is
able to provide the benefit of excellent expertise and best process in that specific vertical.

A. DRIVERS OF BPO GROWTH IN INDIA:

A driver is most commonly a factor that contributes to the growth of a particular

business.
There are mainly six important business drivers that are pushing enterprises to
consider the BPO option in India. These are:

1. ABUNDANT TALENT.
Indias young demographic profile is an inherent advantage complemented by an
academic infrastructure that generates a large pool of English speaking talent. Talent
suitability concerns are being addressed through a combination of government, academia

and industry led initiatives. It includes efforts by NASSCOM and other education
agencies like UGC and AICTE to facilitate industry inputs on curriculum and teaching.

2. SUSTAINED COST COMPETITIVESS:

India has a strong track record of delivering a significant cost advantage, with clients
regularly reporting savings of 25%-50% over the original cost base. the ability to achieve
such high levels of cost advantage by sourcing to India is driven by the ability to access
highly skilled talent at lower wage cost.

3. CONTINUED FOCUS ON QUALITY.

Demonstrated process quality and expertise in service delivery has been a key factor
driving Indias leadership in global service delivery. Since the inception of industry in
India, players within the India has been focusing on quality initiatives, to align
themselves with international standards.

4. WORLD CLASS INFORMATION SECURITY ENVIRONMENT:

Indian authorities have built a strong foundation for an info-source environment in the
country. These include strengthening the regulatory framework through proposed
amendments to further strengthen the IT Act-2000.

5. RAPID GROWTH IN KEY BUSINESS INFRASTRUCTURE.

BPO sector has been a key beneficiary with the cost of international connectivity
declining rapidly and service level improving significantly. The growth is taking place
not only in existing urban centre but also in satellite towns and smaller cities.
The enabling policy environment in India was instrumental in catalyzing the early phase
of growth in this sector. Policy makers in India have laid special emphasis on
encouraging foreign participation, with participating firms enjoying minimum regulatory
and policy restrictions along with a broad range of fiscal and procedural incentives.

ISSUES AND CHALLENGES IN BPO GROWTH:

1. INFRASTRUCTURE CHALLENGE:Indias ITES-BPO industry continues to
attract significant business from both the US and Western Europe. While national issues with

infrastructure, e.g. telecommunications system etc is being addressed, the local infrastructure
(roads, bridges, airports, urban transportation, etc) is becoming a bottleneck to the expansion of
capacity. Getting a connection is still not a hassle-free job.

2. MOVING UP THE VALUE CHAIN:

Customers are looking for vendors who can provide end-to-end solutions. Indian vendors
are using several methods like tie-ups with existing players, acquisitions, investing in
research and development and leveraging industry best practices for expansion.

3. SHRINKING PROFIT MARGINS:

To sustain in the highly competitive market, the players are looking for newer revenue
sources and opportunities to keep cash flowing in. Again with service level agreements
becoming stringent and sales cycles stretching far in international deals, the BPO service
providers need deeper pockets and financial muscles. High initial capital investments in
the industry, long gestational periods, competition leading to reduced billing rates,
appreciation of rupee against the US dollar have led to increased margin pressures and
increased industry consolidation.

4. HUMAN RESOURCE ISSUES:

Another major problem is the high attrition and growth aspirations of the workforce. Odd
hours at job and stress are supposed to be major causes of high attrition rate which
increases recruitment and training costs. The service providers need to spell out a
comprehensive human resource policy that outlines a clear career progression path for the
employees.

SWOT ANALYSIS OF INDIAN BPO INDUSTRY

WEAKNESS

STRENGHT

THREATS

OPPORTUNITIES

1. STRENGTHS:
Highly skilled, English-speaking workforce.
Abundant manpower.
Cheaper workforce than their Western counterparts. According to Nasscom, The
wage difference is as high as 70-80 percent when compared to their Western
counterparts.
Lower attrition rates than in the West.
Dedicated workforce aiming at making a long-term career in the field.
Round-the-clock advantage for Western companies due to the huge time
difference.
Lower response time with efficient and effective service.
Operational excellence.
Conducive business environment.

2. WEAKNESSES:
Recent months have seen a rise in the level of attrition rates among BPO workers
who are quitting their jobs to pursue higher studies. Of late workers have shown a
tendency not to pursue BPO as a full-time career.
The cost of telecom and network infrastructure is much higher in India than in the
US.
Manpower shortage.
Local infrastructure.

3. OPPORTUNITIES:

 To work closely with associations like Nasscom to portray India as the most
favoured BPO/ITES destination in the world.
Indian BPO/ITES companies should work closely with Western governments and
assuage their concerns and issues.
India can be branded as a quality BPO destination rather than a low-cost
destination.
$60 billion BPO business by 2010.

4. THREATS:
The anti-outsourcing legislation in the US state of New Jersey. Three more states
in the United States are planning legislation against outsourcing. These areConnecticut, Missouri and Wisconsin.
Workers in British Telecom have protested against outsourcing of work to Indian
BPO companies.
Other BPO/ITES destinations such as China, Philippines and South Africa could
have an edge on the cost factor.
Slowdown of demand.

CONCLUSION
Business Process Outsourcing industry is growing rapidly since its inception.
Indian BPOs are going through exciting times. Starting with captive units and
low-end activities BPOs are now moving to high-end activities. Indian BPOs are
operating in both front-office and back-office operations.BPO industry in India is
growing at the rate of 28% and is expected to reach around USD14.8 Bn in2009.
Exports are accounting major proportion, which are in journey to touch USD 12.8
Bn by the end of 2009. These are growing at the fluctuating rate of around 20%30% a year. Domestic BPO market is also in growth and has accounted USD1.6 Bn
in 2008.Inspite of this BPOs are helping in the development of economy by
decreasing the evil of unemployment. Since the evolution of BPO it is serving the
country by providing the employment to talented and able youth of the country. Up
till 2009 it has generated around 730,000 employments in the country. Shift in
BPO services has also been experienced with moving from low-end to BFSI
(Banking, Financial Services and Insurance) and Hi-Tech sector. But the economic
downturn has impacted the growth of BPO industry. Still it occupied 60% of the
offshore market. The industry is expected to achieve USD 60 Bn by the end of

2012. And USD 225 Bn by the end of 2020.Various trends have been experienced
in BPO.
The BPO industry is drawing significant attention and India, by virtue of its
dominance in this sector is at the center of this attention. The shift of the Indian
economy towards more service orientation suggests that in the long term, India will
continue to be a major player in the global BPO industry.
Despite the growth that this industry is witnessing, there are certain areas that
require greater attention going forward from service providers to ensure that the
industry remains firmly on the growth path. This survey was conducted with the
objective of analyzing some of the key trends that will drive the future direction of
the industry. We
Have endeavored to highlight some of the key risks that the industry faces and will
face as the industry evolves. We have also discussed the corresponding riskmitigants that service providers and companies are focusing on, to manage the
risks. We hope that this survey provides service providers with a deeper
understanding of the
Industry they operate in and acts as an important input to potential customers
considering outsourcing their processes to India.