1.

Introduction :-

Few years back, nobody would have imagined that a day would come
when no direct contact with customers are needed. All the business processes are
done from a remote location with the help of technological advancement.
Telecommunication industry has spread their hands an all over the globe through
internet services. During 1990’s the development of telecommunication reduced
the cost and enhanced the ease of communication across the world. All the
informations are now converted into digital format, which is easy to transfer of
work offshore utilizing resource arbitrage.
In the era of globalization all the multinationals reviewed their
strategic positions to overcome severe competition and general slowdown in the
global economy. All the companies want to maximize their profits through proper
allocation of resources. The activities of the companies can be segregated as core
and non-core activities. The main emphasis is given to the core processes of the
company by utilizing their resources and managing their limits. So all the non-core
processes are handled by the outside experts. The outburst of information
technology made an easy route to compete globally. All the companies want to be
economically benefited by off-shoring their non-core activities. The real time
communication cost is gradually decreasing due to the enormous application of
web-based tools. Now all the business operations are going across thousands of
miles due to globalization of non-core processes. Standardized web-based tools
have used globally to transmit data. Information Technology enabled services (ITES)
outsourcing helps the multinationals to diversify their non-core operations. Cost
advantages, competitive pressures, specialized service providers act as a catalyst
of outsourcing. So the core processes are the main activity of the companies. To
enhance these core processes the company utilizes their resource base and time
management to hold a good share of global market.

1
 2. Concept/Meaning:-

Outsourcing is not a new activity to outsource the business processes.

From the barter age it is originated as a specialized tool to overcome the
increasing economic pressures. It is a transfer of delegation of authority and power
to an external service provider to accomplish the task of day to day business
operations. The outsourcing job may be done by the individual or the organization
itself but they prefer to do it from the specialized service provider. At the
beginning of 20’Th century, the automobile giant Ford utilized outsourcing
providers for making their car-tyres. Word’s best sports-shoe makers e.g. Adidas,
Nike, Reebok outsource their research design & manufacturing jobs to a Chinese
shoemaker, Yue Yuen.
The idea of outsourcing has its root in the ‘competitive advantage’
theory propagated by Adam Smith in his book ‘The Wealth of Nations’ which was
published in 1776. The shifting of manufacturing jobs to other countries providing
cheap labour during the Industrial Revolution, has taken a new connotation in
today’s scenario. In a world where IT has become the backbone of businesses;
outsourcing is the process through which one company hands over part of its work
to another company making it responsible for the design and implementation of the
business processes under strict guidelines regarding requirements and
specifications from the outsourcing company. BPO has become synonymous with
corporate strategy and companies are realizing the strategic role it can play in
marinating global competitiveness.
Adam Smith wrote about 200 years ago “the maxim of every prudent
master is never to attempt to make at home what it will cost him more to make
than to buy”. The Harvard Business Review identified outsourcing as one of the
most brilliant management idea and practice of the past 75 years. Gartner
identifies outsourcing as “the delegation of one or more IT – intensive business
processes to an external provider that in turn owns, administers and manages the
selected processes based on defined and measuring performance criteria”. BPO is
the process of delegating one or more business processes to an external partner. It
2
is generally for back-end administrative functions that are necessary to run a
business but are not a part the core business processes. Bargaining businesses,
pressures of competition, shrinking time span, easier time communication, the
concept of ‘global village’ with seamless synergies, abundant hard working and
skilled personnel at low cost and the ability to work round the clock due to time
zone differences are some of the reasons for the surge in outsourcing. The IT
Enabled Services (ITES) and Business Process Outsourcing (BPO) are used
interchangeably now-a-days. ITES is basically a sub-set of BPO. If the process that
outsourced involves use of Information Technology it is called ITES else it just
Business Process Outsourcing.

3. Why Outsourcing/Rationale:-

Business Process Outsourcing is beneficial to both the outsourcing

company and the service provider, as enables the outsourcers to reduce cost and
increase quality in non-core areas of businesses and utilize his expertise and
competencies to the maximum. BPO saves precious management time & resources
and allow focus while building upon core competencies. Companies are generally
looking at low cost destination where third-party service provider is available.
Optimizing business performance to attain value chain is the main
activity of an outsourcing firm. Following services are provided by the BPO –
Receivable & Payables, Inventory Management, Other Processing, Quick Book
Accounting, Financial Statement Preparation and Accounting services. BPO saves
time, explore new revenue areas, accelerate other projects and focus on their
customers. Some motivational factors of BPO enhancement are factor cost
advantage, economies of scale and business risk litigation. Benefits derived from
BPO can be summarized as follows –
I. Productivity improvements -
As the company doesn’t manufacture their products in-house only, they are using
on-shoring or off-shoring business processes to the third party services provider.
3
Maximum portion of the manufactured goods are now being taken from outsourcers
who are experts in this fields. So improvement of productivity can be seen in an
increasing trend.
II. Access to expertise -
Low cost destination & experts domain knowledge gives the company better
exposure in their market share. Therefore rather than training own personnel &
recruiting domain experts it is economical to outsource the jobs. Prescribed
guidance & rules are followed by the experts.
III. Operational cost control -
By outsourcing non-core processes, companies can focus on other operational
areas. Many operating costs are being eliminated by outsourcing the jobs. Hence
the company can concentrate on their main operating areas e.g. developing new
products, expanding market span, enhancing customer satisfaction etc.
IV. Cost savings -
Through process improvements, re-engineering, use of technologies, domain
expertise can help to minimize total cost. This leads to reducing the administrative
cost and operating cost. By outsourcing the company can make some control on
cost savings.
V. Improved accountability -
Transparency can be seen by outsourcing any job. Some specific guidelines and
rules are being given to the outsourcers. Contract amount are also fixed. Natures
of any job, delivery details, time span etc are being mentioned in the contract, so
easy and improved accountability can be seen.
VI. Improved HR -
Flexible and scalable services are provided to accompany the changing customer
needs & requirements. New inventions to the goods & up gradations are the main
area of outsourcing. HR personnel are taken care to the customer needs.
VII. Opportunity to focus on core business -
As the non-core a\activities are outsourced, management can concentrate on their
core business operations. Increasing scales, inventing new products, supporting
company acquisitions, consolidations etc are the main area of the management.

4
4. Implementation Issues In Outsourcing:-

For selecting a BPO partner, certain issues or factors are to be taken

in care. The considerations are as follows –
I. Competency –
Every firm wants to outsource their non-core activities. But the competency is
related with the core activities of the business processes. Practically all the core
activities are processed in-house but some automobile industries are now-a-days
outsourcing their core processes. HR activity is the only activity which is not fully
outsourced, as HR activity differs from industry to industry. So assessment of
outsourcing agents is very much important for the customer satisfaction.
II. Control -
Control is a very vital factor in choosing BPO. Control can be done in two
perspectives – long term & short term control. When any long term contract is
taken into consideration, the supervision or control should get preference because
in long term the controlling aspect may be get weaker. But in short term contract
the control is needed to know how the firm is doing, as the outsourcing company
desires. Too little control is also makes an adverse result and too much control
means doing the job himself.
III. Cost -
Cost is to be determining after evaluation of the outsourcing job. The vendor firm
quoted the least cost. The outsourcing company always looking at low cost
destinations, so the least cost vendor takes the contract. If there is any escalation
cost, then in the long term when inflation arises, outsourcing is uplifted. So the
outsourcing company looked for reasonable savings in the cost without
compromising quality.
IV. Confidentiality -
As outsourcing are done far across the country with the help of telecommunication
services, so no direct control is being seen from the outsourcing company. The

5
outsourcers are very much cautious in maintaining the confidentiality of their
client. The Service Level Agreement (SLA) is being implemented to stop hacking or
data leakage.
V. Competitiveness -
Performance is the main measurement of how BPO works. If the BPO works under
the given guidelines then continuity is carried out. Since the outsourcing company
is using multilocational outsourcing operations and then the vendor is to be very
cautious about their contract norms. So the BPO is also hand of gaining competitive
advantages.

5. Models of Outsourcing:-

Business Process Outsourcing is a process which is being adopted many

of the western companies to reduce their cost burden & improve their product
quality. BPO’s activity can be classified in the following chart –

Business Process Outsourcing (BPO)

Geographical Service Provider

On-shore Near-shore Off-shore Data Voice Software

In-bound Calls Out-bound Calls

There so many models of outsourcing but only three models are

very much practical, which are shown below –
6
Model 1:
US-based Accounting Firm

Flow of work

Captive Centres in India

Model 2:
US-based Accounting Firm

Flow of work

Centres in India Centres in India

Model 3:
US-based Accounting Firm

Flow of work

US-based Agencies

Flow of work

Centres in India Centres in India

6. Market Segmentations:-
7
 1999-2000 2000-2001 2001-2002(E) 2008(F)

Segments Employ Reven Employ Reven Growt Employ Reven Growt Employ Reven
-ment -ues -ment -ues -h (%) -ment -ues -h (%) -ment -ues
Customer interaction 8600 400 16000 850 112 33000 1650 94 270000 20000
services including call
centers
Back office 15000 950 19000 1350 42 35000 2750 111 300000 21000
operations/Revenue
Accounting/Data
Entry/Data conversion
including Finance &
Accounting/HR Services
Transcription/Translation 5000 120 6000 160 33 5200 150 -6 50000 4000
service
Content 15000 820 27000 1600 95 30000 2100 31 300000 25000
Development/Animation/En
gineering and Design/GIS
Other Services including 1400 110 2000 140 27 3000 210 50 180000 11000
Remote education, Data
Search, Market Research,
Network
Total 45000 2400 70000 4100 27 106200 6960 70 1100000 81000

Source: NASSCOM E - Estimate F - Forecast

Table – 1

Information Technology Enabled Service (ITES) industry is very fast

growing area in the Business Process Outsourcing (BPO) activities. According to the
statistics of NASSCOM, this industry is expected to be $17 billion industry in India &
will generate approximately 1.1 million job opportunities by 2008. The growth rate
of the industry is as high as 73% resulting in the Rs. 7100 crores revenue. Total
revenues and employment of the industry substantially increased from Rs.2400
crores and 45000 in 2000 to Rs.4100 crores and 70000 in 2001 respectively.
Following are the various segments of outsourcing –
I. Customer service interaction including call centres -
According to the statistics of NASSCOM there was a growth of 112% in revenue and
86% growth in employment from the year 1999-2000 to 2000-2001. And the call
centres have grown Rs. 3000 crores in 2002-2003 and it maintained a steady growth
of 45% over next five years. Quality services, Low cost manpower, Highly English
speaking persons etc. are the inherent reasons.
II.Back office operations/Data conversion/HR activities-
42% growth in revenue and 27% growth in employment are seen from the year 1999-
2000 to 2000-2001. And it has grown by 111% in the year 2001-2202. Data entry

8
operations of the raw data & paper documents received from the remote location
has an increasing trend in the field of back-office operations.
III. Translation services -
Medical transcriptions involve the transcribing of medical records from audio
format or as dictated by doctors into either a hard copy or any electronic format.
Doctors’ overseas record their finding into Dictaphone and the sound tracks are
transferred through datacom links to ITES companies specializing in this area. It is
predicted that the segment will produce Rs. 4000 crores revenues and 50000
employments in the year of 2008. It was seen that 33% grown in the revenue inn
the year of 2000-2001 over 1999-2000.
IV. Content development/Animation -
In the world India is the low-cost destination with high skilled manpower are
available. So this is the hottest destination of BPO industry. There were 95%
increase in the revenue & 80% increased in employment in 2000-2001 over 1999-
2000. And there was a 31% growth in the year of 2001-2002(E). Specifically
animation industry is producing a huge impact I this area.
V. Data research, Market survey, Consultancy, Management
etc. -
50% growth in revenue is achieved in the year 2001-2002. And 27% growth was seen
in the revenue & 43% growth in employment in 2000-2001 over 1999-2000. It is
expected that in the year of 2008 the employment will reach at 180000 and
revenue Rs. 11000 crores.

7. Outsourcing & ITES:-

The rapid pf the BPO industry is mainly depends upon the mutual
contribution of the ITES & outsourcing activities. ITES includes services that can be
outsourced using the powers of IT.
We can define the emergence of outsourcing activities as follows –

9
 • 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
Since the outset of globalization in India during the early 1990’s,
successive Indian Governments have pursued programmes of economic reforms
committed to liberalization and privatization. The ITES or BPO industry is a young
and nascent sector in India and has been existence for a little more than five years.
Despite its recent arrivals on the Indian scene, the industry has grown
phenomenally and has now become a very important part of the export oriented IT
software and services environment. The ITES/BPO market expanded its base with
the entry of Indian IT companies and the ITES market of the present day is
characterized by the existence of these IT giants who are able to leverage their
broad skill-sets and global clientele to offer a wide spectrum of services. The
spectrum of services offered by Indian companies has evolved substantially from its
humble beginning. Today Indian companies are offering a variety of outsourced
services ranging from customer care, transcription, billing services, data base
marketing to web sales/marketing, accounting, tax processing, transaction
documents management, tele-marketing, HR hiring and bio-tech research.
Looking at the success of India’s IT/software industry, the Central
Government identified ITES/BPO as a key contributor to economic growth
prioritized the attraction of FDI in this segment by establishing “Software
Technology Park” and “Export Enterprise Zones”. Benefits like tax-holidays
generally enjoyed by the software industry were also made available to the
ITES/BPO sector. The National Telecom Policy (NTP) introduced in 1999 and the
deregulation of the telecom industry opened up national, long distance and
international connectivity to competition. The Government of various states also
provides assistance to companies for overcome the recruitment, retention &
training challenges in order to attract investments to there to there region. The
National Association of Software & Service Company’s (NASSCOM) has created
10
platform for the dissemination for the knowledge & research in the industry
through its survey & conferences. NASSCOM acts as an advisor consultant & co-
ordinating body for the ITES/BPO industry leasion between the central & state
Govt. committees & the industry. The ardent advocacy of the ITES/BPO industry
has lead to the inclusion of the call centres in the “business auxiliary services”
segments, thereby ensuring exemption from the service tax under the finance bill
of 2003.
Outsourcing to India offers significant improvements in quality &
productivity for the overseas companies on critical parameters such as no. of
correct transactions/no. of total transactions, total satisfaction factor, no. of
transactions/hour an average speed of answer. Surveys by NASSCOM also revealed
that Indian companies are better focused on maintaining quality and performance
standard. Indian ITES/BPO companies are on an ascending curve as far as the
quality standards are concerned. Organization that have achieved ISO 9000
certification are migrating to the ISO 9000-2000 Standard & companies on the CMM
framework are realigning themselves to the CMM model. Apart from that
investigation in upgrading their CRM & ERP initiative, many Indian ITES companies
are beginning to acknowledge COPC certification for quality & are working towards
achieving COPC licenses.

ITES-BPO Emplyees & Revenues

Employee &

8
Revenue

6
4 Employees('00,00
2 0s)
0 Revenues(US $
FY 2004 FY 2005 FY 2006 bn)

Financial Year

Table - 2

11
 ITES-BPO Sector based Offerings
Human Resources
11% 3%
Finance &
40% Accounting
Customer
46% Interaction
Others

Table - 3

8. Outsourcing Activities:-

There are so many activities which are outsourced. These outsourcing

activities can be classified into three broad perspectives –
I. Conventional areas -
It includes house-keeping of building and work areas, security of plant and
township, car pool, catering, hospitability and canteen, horticulture establishment
and maintenance etc.
II. Non-conventional areas -
It includes maintenance of critical and specialized equipment, crane maintenance,
internal material handling with equipment, quality lab operations, packing of HR
coils, annual maintenance contract for computers, environment monitoring on
specified parameters, waste handling and health management etc.
III. Emerging areas -
It includes procurements of activities, accounting activities, human resource
functions and management or total solution contracts etc.

12
 In other words IT can be leveraged varies under the influence of
suitability to industry, location, time, costs and managerial perception of the risk
involved. The process that can be outsourced may be classified into IT enabled and
others. So all the business process can be classified into three groups, which are as
follows –

Nature of Activity Possibilities for Outsourcing

Core Process
Critical Non-core Process
Non-critical, Non-core
Process
Key to firm success and strategic in nature
(e.g. R&D)
Important but not one of the differtiators
(e.g. supply chain management, accounting
& HR administration)
Relatively less critical and can be mostly
outsourced
(e.g. data analysis for routine information and
administration)

Table - 4

8.1. Global Scenario:-

BPO is not a new phenomenon in the global market. Now-a-days the

global off-shoring market continues to grow rapidly for producing high quality
products with low cost. This global off-shoring exceeds US $300 bn. A variety of
sources have predicted that BPO services have grown worldwide from $119 bn in
2000 to $240-$300 bn by the year 2005.
USA and Canada currently have more than 62% of the BPO pie and will
continue to dominate the BPO market. 95% of the work will goes to local BPO
companies while only around 5% is outsourced to off-shoring locations.
There are four drivers to the outsourced boom being witnessed:
a. Focus on core competencies
b. Efforts to reduce costs
c. Improvement in service quality

13
 d. Increased efficiency

• Countries competing in the BPO space –

Till the mid 1990, Ireland was considered the most preferred location
for outsourcing. The large available pool of English speaking workers, government
assistance, low labour cost, goods infrastructure and access to European Eunion
were factors in favour of Ireland. But after 1990, there were so many countries
who want to grab that market e.g. India, Malaysia, Philippines, China, Australia,
Mexico, New Zealand and UK.

Market Local Cosmopolita Cost

Country Workforce Infrastructure
Access Market n base
New 2 2 0 2 3 2
Zealand
Malaysia 1 2 0 2 2 2
Japan 1 2 1 3 1 3
Hong Kong 1 2 2 2 2 2
India 3 2 2 2* 3 1
UK 1 2 2 3 2 3
(Ratings are on a scale of 1 to 3, with 1 being the lowest and 3 the highest)
* Infrastructure is good only in certain cities
Source: NASSCOM

India’s main competitive advantage stems from the availability of a huge

education, English speaking population and a Competitive cost base.

Table - 5

India made the preferred location for BPO in Asia-pacific. The trend
of relocating non-core business functions off-shore to developing nations such as
India and China continues to gain momentum. Commoditized functions that require
more generic and easily acquired skills will continue to be strong candidates for
off-shore relocation. Advancement in IT during the last two decades have allows

14
organizations to separate core from non-core activities. Two common strategies for
reducing costs relating to non-core functions are physically relocating them and
farming them out to service provider vendors. Deployment and outsourcing can
employ either an off-shore or near-shore strategy, based on the location to which
functions are related or the location of outsourcing service providers. Initially IT
services were the focus of most firms’ off-shore deployment and outsourcing
efforts. The scope of functions that have been deployed or outsourced off-shore
has continued to expand to BPO/ITES, a broad category of functions that include a
great variety of support roles, ranging from answering customer queries in a call
centre to sophisticated financial analysis. In US services imports have grown from
14% to 17% of total imports between 1980 and 2003 (Bureau of Economic Analysis,
US International Transactions Accounts data). According to McKinsey estimation
that the BPO industry worldwide have grown roughly $32 bn to $35 bn in revenue in
2002 and projected to grow at a rate of 30 to 40 percent per year for the next five
years.

15
 Global BPO Scenario

300 234
BPO Market
Size($ Bn)

200 119 2000

100 2005
0
BPO Market Size
Year

Source: Gartner

Table - 6

16
 BPO Market Size($ Bn)
Globa BPOScenario
234
250
200 143
150 119
74 64
100
50 1021 32 36 BPO Market Size
0 da
2000

e
pe
E

id
BPO Market Size

w
na

w
o
o

R
A

2005
ur

rld
Jp C a

&

o
-

W
S

an
U

Country

Source: Gartner
Table - 7

Worldwide BPO Market - Function

wise breakup
Share($)

100
Market

50
0
2000
HR
Indirec
SCM
Marke

Paym

istratio
Sales,

Financ

Admin
ent

2005
e
t

Functions

Source: Gartner
Table - 8

17
 Wordwide BPO Market by industry
verticals
Financial Services

15% 9% Communication

16% Consumer
43% goods/services
Manufacturing
17%
IT

Total Market Size in 2000 – US $ 119 bn

Source: Gartner

Table - 9

The off-shoring market for the globe BPO industry could expand by
more than 10 times from its current size of approximately US $150-200 bn. BPO
growth for the globe off-shore IT & BPO industries are quite large, industry
evolution will be shaped by the interplay of three major focuses:
a. Supply (the capacity & quality of off-shore location)
b. Demand ramp up (realistic adoption of off-shoring by companies)
c. Industry conduct (action taken by industry players)

IT and BPO work are higher margin businesses. It is estimated that

profits generated by $10 bn exports by Indian (IT & BPO) is equal to profits
generated by $30 bn of manufacturing exports generated by China. The US is
expected to be the largest source market for the ITES accounting for nearly 60% of
the market. The share of the off-shore components is expected to increase to 23%
of total spending by 2007. Europe is expected to be the second largest market for

18
the ITES sector, accounting for 22% of the total spending which is expected to
reach Euro 129 bn by 2008.

Facts & Figures

Total Value of Jobs Exported (USD $ billions), (Offshore Outsourcing & Offshore
Subsidiaries), 2002-2004

Country 2002 2003 2004 As % of CAGR

2003 GDP
US 106.64 112.29 123.90 1.13 7.79
UK 27.15 27.14 27.28 1.64 0.24
France 21.68 22.20 22.81 1.38 2.57
Germany 45.76 47.58 48.22 2.12 2.66
Japan 196.82 212.36 225.63 6.33 7.07
Hong Kong 14.40 14.69 16.21 7.64 6.08
Total 412.45 436.26 464.04 --- 5.93
Source: FROST & SULLIVAN
Table - 10

Global Predicted Figures

McKinsey & Co. predicts global market for IT – enabled services to be over
$140 billion by 2008

These $ 142 Billion can be broken up and shown as under

Customer Interaction Service 33.0
Finance & Accounting Services 15.0
Translation, Transcription & Localization 2.0
Engineering & Design 1.2
HR Service 5.0
Data Search, Integration & Management 44.0
Remote Education 18.0
Networking Consulting & Management 15.0
Website Services 5.0
Market Research 3.0
Total 141.2
Source: NASSCOM McKinsey Study – India IT Strategies
In that the opportunities for India will be $ 17 Billion

19
 Table – 11

Serial Number of US Jobs Moving Offshore

No.
Job Category 2000 2005 2010 2015
1 Management 0 37477 117835 88281
2 Business 10787 61252 161722 48028
3 Computer 27171 108991 276954 72632
4 Architecture 3498 32302 83237 84347
5 Life sciences 0 3677 14478 36770
6 Legal 1793 14220 34673 74642
7 Art, Design 818 5576 13846 29639
8 Sales 4619 29064 97321 26564
9 Office 53987 295034 791034 1659310
Total 102674 587592 1591101 3320213
Source: U.S.Department of Labour and Forrester Research, Inc.

Table – 12

20
 IT Services Export ($ mn)

126
Country

130 Russia
1
2800
China
4750
Ireland
0 2000 4000 6000 India
Total Export

Source: NASSCOM

Table – 13

8.2. Indian Scenario:-

At present India is the world’s most important off-shoring location

for the outsourcing of IT services and IT based business processes. India has 44%
share of global market for IT and BPO off-shoring. The global market is currently
worth some USD 40 bn and the India’s total revenue in the fiscal 2004-2005 was
USD 28 bn from software, IT services, geographic location and high skilled
manpower are the main reasons for multinationals to back in India. In the area of
qualifications, capabilities, quality of work, linguistic Excellencies and work ethics
etc. made India in the top position among China, Philippines, Ireland, Australia,
and Canada etc.
India is able to offer 24*7 services and reduction in turnaround times
by leveraging time zone differences. About 100000 engineer graduates from India
every year. Many of these engineers are employed with call centres for trouble
shooting and providing technical support at salaries that are dramatically lower

21
compared to pay-scale in the US. The average monthly salary in India is $400-700
compared to $2700-2800 in the US. According to the current data, the BPO industry
in India employees around 400 people everyday with the people existing from this
sector being around 12% of the total workforce. Dell, Sun Microsystems, LG, Ford,
GE, Oracle all have announced plans to scale up their operations in India.
Managed care companies, which is more popularly known as
Healthcare players, are increasingly outsourcing business processes due to changing
& challenging business environment and technological and legislative changes. The
combination of low labour costs, project management skills and technological
know-how make India attractive for Business Process Off-shoring. Indian labour cost
is very cheap e.g. a chartered accountant gets $15000 a year where as a CPA in US
earns $75000 a year.

Transaction
Processing – Core
Transaction
Processing – Non core
Call
Centre
Transcription
Services
Data
Entry

Mid 1990’s late 1990’s 2000 2005

Table - 14

If we see the evolution of the BPO in the India, we can define some
phases as depicted in the table – 14. GE pioneered the trend of outsourcing to India
when it set up a facility in Gurgaon in mid 1990s. And some of the other companies

22
like American Express and British Airways also operating their back offices in India
since the mid 1990s.
Initially low-end work such as data entry and call centre activity was
outsourced to India. With increasing confidence of the companies in the
capabilities of Indian operations, higher value added work such as processing of HR,
accounts and other non-core functions came to India. The success of these early
pioneers encouraged a host of other MNC’s to set up their own back-office
operations in India. Banks such as Citi Bank, HSBC, Standard Chartered and other
companies like Dell, HP set up their own captive operations. In FY 2005-2006, the
Indian ITES/BPO segment grew by 37% contributing to $6.3 bn to the total software
services exports of $23.6 bn.
Indian BPO cities can be divided into two segments, first segment
deals with leading BPO cities and second segment deals with developing BPO cities.

BPO/ITES hubs in India

First Segment Second Segment
- Bangalore - Ahmedabad
- Chennai - Amritsar
- Hyderabad - Bhubaneshwar
- Mumbai - Chandigarh
- Gurgaon - Guwahati
- Noida - Indore
- New Delhi - Jaipure
- Pune - Kanpur
- Fariadabad - Kochi
- Kolkata
- Mangalore
- Nagpur

IT Landscape of key Indian cities

City Focus Prominent firms Employees
Delhi Call centres, GE, American Express, 73000

23
(includes transaction STMicroelectronics,
Gurgaon processing, chip Wipro Spectramind,
and Noida) design, software Convergys, Daksh, ExL
Mumbai Financial research, TCS, MphasiS, i-flex, 62050
back office, software Morgan Stanley,
Citigroup
Bangalore Chip design, software, Infosys, Wipro, Intel, 109500
bio-informatics, call IBM, SAP, SAS, Dell,
centres, IT consulting, Tisco, TI, Motorola,
tax processing HP, Oracle, Yaho, AOL,
E & Y, Accenture
Hyderabad Software, back office, HSBC, Satyam, 36500
product design Microsoft
Chennai Software, transaction Cognizant, World Bank, 51100
processing, animation Standard Chartered,
Polaris, EDS,
Pentamedia
Kolkata Consulting, software PwC, IBM, ITC, 7300
Infotech, TCS
Pune Call centres, chip MsourceE, C-DAC, 7300
design, embedded Persistent System,
software Zensar
Source: NASSCOM
Table - 15

Facts & Figures

Year 2003 to 2005, the size and growth of the BPO in India can be
depicted as follows:

Year Size ( US $ bn ) Growth Rate

2003 2.8 59%
2004 3.9 45.3%
2005 5.7 44.4%
Source: NASSCOM
Table - 16

Currently Indian BPO industry employees in excess of 245100 peoples and

another 94500 jobs are expected to be added during the current financial year
(2006-2007).

ITES/BPO 2003-2004 2004-2005 2005-2006

Exports ($ bn) 3.1 4.6 6.3
24
 Employment 253 316 415
(no. of people in
‘000s)

Table – 17

Statistics regarding number of employees vs. revenue sector wise

in India

Growth trend of the outsourcing industry

Service Area 2002 - 2003

Employment Revenue (in $ m)

Customer care 65000 810
Finance 24000 510
Payment service 11000 210
Administration 25000 310
Content development 44000 465
HR 2100 45
Total 171100 2350
Source: NASSCOM

Table - 18

Table – 18

25
 Indian software and IT:Export-drivan
Market Share boom(USD bn)

30
20
10
0 domestic market
export
99

01

03

05

07
19

20

20

20

20
Year

Source: DB Research, NASSCOM, 2005

Table – 19

IT sector employment continues to rise

sharply (Indian IT employees '000)

1000
value

500 IT Software and

services
0 ITES-BPO (CAGR
2000 2001 2002 2003 2004 2005 54% )
Year

Source: DB Research, NASSCOM, 2005

Table - 20

26
 Percentage Of The Revenue Contributed By BPO
Company June Sept Dec March June
2002 2002 2002 2003 2003
MphasiS 16.48% 21.17% 22.61% 25.24% 28.9%
Wipro 4.85% 5.78% 6.81% 7.785% 8.61%
Infosys 0.027% 0.23% 0.85% 1.01% 1.175%
Digital N.A. N.A. 1.454% 3.53% 5.9%
Global soft
HCL Tech 5% 5% 6% 9% N.A.

Source: NASSCOM
Table – 21

Statistics of the Number Of Employees in Indian call centres

Company Number of Employees
ExL 4500
Spectramind 2600
Daksh 2000
vCustomer 1500
Tracmail 1365
HCL e-serve 870
Epicenter 700
ICICI OneSource 650
GTL 650
WNS 1600
Source: NASSCOM-ITES, September, 2002

Table - 22
Employees And Revenues Associated With BPO Units
Revenue (in $ m) Headcount
GE 250 12000
Wipro Spectramind 95 11500
Convergys 94 9800
IBM-Daksh 65 6300
MphasiS 60 4800
WNS 55 4500
EXL 44 4600
ICICI OneSource 42 4100
HSBC 41 6000
Amex 40 3800
Source: Economic Times (August,2004)

Table – 23

27
 Voice Vs Non-Voice
Company Revenues Employees Voice:Non-Voice
($ Million)
Wipro Spectramind 41 5000 80:20
Daksh eServices 35 4000 70:30
Office Tiger 25 1000 0:100
HCL Technologies - 2346 90:10
BPO
ICICI OneSource - 2175 70:30
World Network 35 2500 65:35
Services
exi Service.com 28 2300 75:25
MsourceE 20 3162 93:7
Hinduja TMT 24 1400 66:34
Tracemail 11 1000 50:50
Progeon 4.4 685 30:70
Source: Business World (4th august,2003)

Table - 24

Top 15 BPOs in India

Serial No. 2004-2005 2005-2006
1 WNS Genpact
2 Wipro BPO WNS
3 HCL Technology BPO Services Wipro BPO
4 IBM Daksh HCL BPO Services
5 ExI Services ICICI OneSource
6 MphasiS BPO (formerly MsourceE) IBM Daksh
7 Intelenet Global Progeon
8 ICICI OneSource Aegis BPO Services
9 GTL ExI Service Holdings
10 Progeon 24/7 Customer.com
11 24/7 Customer.com MphasiS BPO
12 Datamatics Technologies Intelenet Global
13 Hinduja TMT GTL
14 Transworks TCS BPO
15 tracmail Transworks
Source: NASSCOM, 2005 Survey

Table - 25

28
8.3. Comparative Analysis:-

Outsourcing is the best imperative for MNC’s. According to Forrester

Research Study, nearly half of all companies surveyed stated that they used off-
shore providers to avoid high labour costs in US and Europe. The trend is not just in
the area of outsourcing software development work but business-specific back-
office process.
India is the first choice of all multinationals of the world when it
comes to off-shore business processing. But a now-a-days multi-country strategy to
ensure business continuity makes some bad news to Indian BPO. The multi-country
strategy done for minimizing risks in the event of a natural disaster. Top US
companies often begin their off-shoring decision-making by short listing nations
with specific language capabilities before choosing the off-shore destination.
The three factors are to be considered in choosing a country as the
off-shoring destination-
I.The Cost factor:
This includes cost of labour, management and infrastructure and tax and treasury
impact. At present India is the top position in two factors – costs and people. On
the cost front, India scores the maximum points (3.4 out of 10) compared to China,
Russia, Hungary, brazil and Czech Republic’s 3.1 each, Mexico’s 3, Philippines’s
2.9, Australia’s 2, Ireland’s 1.8 and Canada’s 1.5. “Although India is expected to
retain its leadership position for the foreseeable future, its strong ratings may be
tempered gradually rising labour costs and geographical concerns. In the long run,
India is likely to become the location of choice for high value analytical tasks,
while more generic commodity processes will eventually more to lower costs
environment such as China” – says the AT Kearney report.
II.Environment factor:
It includes economic and political risk, country infrastructure, culture
compatibility, geographic proximity and security of intellectual property. Here
India is not a top position. India scored 1.6 as compared to Canada (2.6), Ireland

29
(2.5) & Australia (2.3). Poor intellectual property and cultural compatibility made
India as a medium player.
Canada, Australia, Ireland have good English speaking people, better
infrastructure, lower economic & political risk but they are poor in terms of labour
cost. Canada now becoming a favourite destination of US companies due to
superior employee retention rate & business process experience. While Brazil &
Mexico rank higher than India in respect of the environmental factors. So the key
constraints are language barriers, employee retention problems, poor IT and
telecom infrastructure, political instability and corruption made India as a second
level country in environmental factors.
III.The People factor:
It includes BPO & IT process experience, size of labour market, education level of
workforce, language barriers, and employee retention. In this factor India placed in
the first position scoring 2.3, while Canada (2.1), Ireland (1.5), Australia (1.4),
Brazil (1.2), Mexico (1.3) are far beyond from India. China now going very fast in
this area because china has large low cost workforce pool, language skills, overall
support of MNC’s Asia business operations etc.

Comparative Analysis On The Basis Of People Factor

Country Labour Labour Labour Labour Average

Quality Cost Availability Turnover Grade
India 4.29 2.14 2.57 3.71 2.80
Vietnam 6.82 3.30 7.00 5.50 4.09
China 6.12 3.40 6.12 4.83 4.22
Indonesia 6.42 4.46 6.27 4.83 4.28
Japan 2.92 6.06 5.33 2.08 4.40
Taiwan 3.20 5.44 4.50 5.05 4.41
Thailand 5.61 5.00 6.39 5.18 4.41
South Korea 3.82 6.88 4.94 4.76 4.58
Singapore 2.45 6.41 4.86 5.20 4.67
Malaysia 4.83 5.08 5.96 5.35 4.77
Hong Kong 3.32 6.32 5.42 5.77 4.82
Note: 0 – Best, 10 – Worst
Source: DB Research, MC Kinsey, 2005
Table – 26

30
 Country Attractiveness Analysis
Human Cost
Rank Country Score* Environment Core Capability
Resources Advantage
Very High Medium
1 India 7.12 Very High IT services
Very High Low Manual Labour,
2 China 5.61 High
Electronic equipment
High High
3 Malaysia 5.59 Medium Electronic equipment
Manufacturing
Czech High High (machinery &
4 5.58 Medium
Rep. intermediate products)

High Medium Very High Financial & hi-tech

5 Singapore 5.45
centres
Medium Very High Low
6 Philippines 5.45 IT services, Call centres
Medium High Medium Manufacturing, Export
7 Brazil 5.44
of basic materials
Manufacturing
Medium High High (machinery &
8 Poland 5.33
intermediate products)

Manufacturing
Medium High High (machinery &
9 Hungary 5.29
intermediate products)

Electronic equipment,
Very High Low
10 Thailand 5.20 Low Export of basic
materials
Manufacturing
Medium High Medium (machinery &
11 Mexico 5.12
intermediate products)

Basic materials,
Medium Very High Low Manufacturing, Financial
12 Argentina 5.07
services

Basic materials,
South Medium High Medium Manufacturing, Financial
13 4.98
Africa services

Medium Medium High Textiles, Metal working,

14 Portugal 4.71
Services
Very High Very Low Manual Labour, export
15 Vietnam 4.70 Very Low
of basic materials
Medium Very High Very Low Manufacturing, export
16 Russia 4.65
of basic materials, IT
High Very Low Very High High standard IT
17 Ireland 4.49
services
Low High Very Low
18 Turkey 4.44 Manufacturing, Textiles
* Total score AT Kearney attractiveness index
Source: AT Kearney, 2004.

Table – 27

31
9. Conclusion:-

India is now the leader in off-shore outsourcing market and the

trend have been seen from 2005. Confidence in the service provider companies put
forward the BPO industry in a new generation in India.
• NASSCOM – McKinsey: in 1999, they estimated that by 2008 it will be $17 bn
but it has been revised to $21-24 bn by 2008. India can capture 25% of global
BPO off-shore market and 12% of the market for other services such as
animation, content development and design services.
• Gartner: $1 bn (2002), $1.2 bn (2003), $13.8 bn by 2007. Gartner doesn’t
incorporate animation, medical or other (legal) transcription services, GIS,
market research, data research, research development, network consultancy
and other non-business processes in its estimates on the ITES market size
and potential.

Future Outlook to Indian BPO Markets

Revenue
\ 2002 2003 2004 2005 2006 2007 CAGR
Year
Offshore
BPO 1322 1825 3017 6439 12563 24230 78.91
Revenue
Indian
BPO 912 1205 1961 3928 7412 13811 69.35
Revenue
Total
BPO 110167 121687 131171 143090 157033 173070 9.45
Market
Source: Gartner Dataquest
CAGR in % 2002-2007 Figures in $ Million
(May, 2003)

Table – 28

32
 India’s BPO Market in 2008
First Estimate
Service Line Second Estimate (2001)
(1999)
HR 5.4 3.5-4.0
Customer Care 4.1 8.0-8.5
Payment Services 2.9 3.0-3.5
Content
2.6 2.5-3.0
Development
Administration 1.3 1.5-2.0
Finance 0.7 2.5-3.0
Figures in $ billion

Table – 29
The industry is showing a growing trend globally and also in India,
which is a positive side and India has a lot of potential to make full use of this
opportunity. India has potential enough to sustain its leadership. The factors like
large pool of English speaking and talented people, government support,
conductive business environment, population dynamics etc. are unique to India.
But other countries like China, Philippines, and Malaysia etc. are emerging very
fast to capture the global market share. The Indian companies are the backbone of
the India’s predominant leadership in BPO sector. It helps India to resolve the
unemployment problem to some extent and also helps to contribute a significant
portion to the GDP of the nation. A report by Deloitee Research (2003) estimates
that two million jobs (of which 851000 will be from the US) from the largest one
hundred global financial institutions will be moved to India by 2008. According to
Forrester Research, the core BPO market worldwide will be benefited from this.
The NASSCOM figures showed clearly that while the industry is currently on the
high growth path, it has to take a serous look at managing this growth to sustain
and reemphasis its advantages in the global marketplace.

33
10. References:-

1) C. Rajeshwer & Sowdeepti A (2003): “Indian BPO Sector – Finance &

Accounting – outsourcing”, The Accounting World, August.
2) Prasuna D.G (2004): “Outsourcing is here to stay”, The Chartered
Financial Analyst, April, pp (23-27).
3) Kably L (2005): “Outsourcing of tax return to India: AICPA guidelines”,
The Chartered Accountant, January, pp (879-881).
4) Samuel P.B (2005): “Accounting outsourcers have your number”, The
Chartered Accountant, May, pp (1490-1492).
5) Rao N.J. & Adusumilli R.B. (2005): “R & D outsourcing – Indian scenario”,
The Chartered Financial Analyst, May, pp (39-40).
6) Rao N.J. & Kumar S (2005): “BPO Bash – Is India losing”, The Chartered
Financial Analyst, June, pp (58-61).
7) Rao N.J. & Prasad I (2006): “BPO – will the boom sustain?”, The
Chartered Financial Analyst, August, pp (42-46).
8) Satish D & Kumar S (2005): “Mega outsourcing – the beginning of the end
“, The Chartered Financial Analyst, August, pp (53-58).
9) Gangadhar V & Reddy N (2005): “Strategies for BPO in India”, The
Chartered Accountant, December, pp (857-865).
10)Chhabra S (2006): “BPO – Finance & Accounting – introduction”, The
Management Accountant, August, pp (605-609).
11)Other literatures from various websites.

34