Business Process Outsourcing Arun Manohar EE03B109

What is BPO? Business process outsourcing (BPO) is a broad term referring to outsourcing in all fields. A BPO differentiates itself by either putting in new technology or applying existing technology in a new way to improve a process. Business Process Outsourcing (BPO) is the delegation of one or more IT-intensive business processes to an external provider that in turn owns, administers and manages the selected process based on defined and measurable performance criteria. Business Process Outsourcing (BPO) is one of the fastest growing segments of the Information Technology Enabled Services (ITES) industry.

Business process outsourcing (BPO) is a broad term referring to outsourcing in all fields. A BPO differentiates itself by either putting in new technology or applying existing technology in a new way to improve a process.

Business Process Outsourcing (BPO) is the delegation of one or more IT-intensive business processes to an external provider that in turn owns, administers and manages the selected process based on defined and measurable performance criteria.

Business Process Outsourcing (BPO) is one of the fastest growing segments of the Information Technology Enabled Services (ITES) industry.

Benefits Reduce or control operating costs Higher level of service for the same or lower costs Focus on your core business and let the operational details be managed by an external expert Gain access to world-class capabilities Increased efficiency Reduced labor costs Predictability of costs Freeing up financial capital and human resources for other projects Secure resource not available internally Utilization of common applications

Reduce or control operating costs

Higher level of service for the same or lower costs

Focus on your core business and let the operational details be managed by an external expert

Gain access to world-class capabilities

Increased efficiency

Reduced labor costs

Predictability of costs

Freeing up financial capital and human resources for other projects

Secure resource not available internally

Utilization of common applications

When does a company outsource? When the predictability of the process /service is not important When there is limited opportunity for the firm to distinguish itself competitively through a particular process or service . When outsourcing does not strip the company of the technical know-how required for future innovation When the firm’s existing capabilities are limited, ineffective, or technically inferior

When the predictability of the process /service is not important

When there is limited opportunity for the firm to distinguish itself competitively through a particular process or service .

When outsourcing does not strip the company of the technical know-how required for future innovation

When the firm’s existing capabilities are limited, ineffective, or technically inferior

Global Market for IT-enabled Services (by 2008) In that the opportunity for India will be $ 17 Billion. Source: NASSCOM McKinsey Study - India IT Strategies 141.2 Total 3.0 Market Research 5.0 Website Services 15.0 Networking Consulting & Management 18.0 Remote Education 44.0 Data Search, Integration & Management 5.0 HR Services 1.2 Engineering & Design 2.0 Translation, Transcription & Localization 15.0 Finance & Accounting Services 33.0 Customer Interaction Services The $142 Billion market can be broken up and shown as below:

Software Outsourcing Offshore software outsourcing involves shifting of software development activities by a company to third party service vendors or software firms that may be located in offshore destinations. Software development isa specialized task that involves huge investments and a specialized workforce. Outsourcing the same could give the companies a chance to develop software at a lower rate, employ specialized labor at a cheaper cost, promote software research and save time Mostly companies outsource their sales activities to offshore locations in order to get better exposure, expand into newer territories, experiment with new products or try out new sales/marketing strategies. Call centers are outlets that exist mainly to answer inbound or place outbound telephone calls and can exist for the purpose of sales, marketing, telemarketing, customer service, technical/non technical support or any other specific business activity. Sales Outsourcing Costumer Interaction Services

Offshore software outsourcing involves shifting of software development activities by a company to third party service vendors or software firms that may be located in offshore destinations. Software development isa specialized task that involves huge investments and a specialized workforce. Outsourcing the same could give the companies a chance to develop software at a lower rate, employ specialized labor at a cheaper cost, promote software research and save time

Mostly companies outsource their sales activities to offshore locations in order to get better exposure, expand into newer territories, experiment with new products or try out new sales/marketing strategies.

Call centers are outlets that exist mainly to answer inbound or place outbound telephone calls and can exist for the purpose of sales, marketing, telemarketing, customer service, technical/non technical support or any other specific business activity.

Source: U.S Department of Labour and Forrester Research, Inc. 3,320,213 1,591,101 587,592 102,674 Total 1,659,310 791,034 295,034 53,987 Office 9 26,564 97,321 29,064 4,619 Sales 8 29,639 13,846 5,576 818 Art, Design 7 74,642 34,673 14,220 1,793 Legal 6 36,770 14,478 3,677 0 Life Sciences 5 84,347 83,237 32,302 3,498 Architecture 4 72,632 276,954 108,991 27,171 Computer 3 48,028 161,722 61,252 10,787 Business 2 88,281 117,835 37,477 0 Management 1 2015 2010 2005 2000 Job Category Number of U.S. Jobs Moving Offshore Sl.No

How Does Outsourcing Benefit Both the US and India? "America's pain, India's gain", The Economist, Jan 2003 "Is your job next ?", BusinessWeek, Feb 2003 "Study sees 406,000 U.S. jobs shifted overseas in 2004", Financial Times, Oct 2004 Yes, jobs are going offshore... A 2003 McKinsey Global Institute study estimates that outsourcing by US companies is likely to increase by 30 to 40 percent over the next five years and this will result in the loss of about 200,000 jobs a year over the next decade.

"America's pain, India's gain", The Economist, Jan 2003

"Is your job next ?", BusinessWeek, Feb 2003

"Study sees 406,000 U.S. jobs shifted overseas in 2004", Financial Times, Oct 2004

Yes, jobs are going offshore...

A 2003 McKinsey Global Institute study estimates that outsourcing by US companies is likely to increase by 30 to 40 percent over the next five years and this will result in the loss of about 200,000 jobs a year over the next decade.

A June 2004 report by the US Department of Labor states that in the first quarter of 2004, less than 2 per cent of job losses in the non-farm private sector were due to outsourcing. When $1 of labor cost is outsourced from the US, the total value created globally is $1.45 to $1.47. Out of this, the receiving country, India in this case, captures just 33 cents. The remaining $1.12 to $1.14 is captured by the US According to a study sponsored by the ITAA (Information Technology Association of America), the benefits of offshore IT outsourcing added $33.6 billion to real gross domestic product in the United States in 2003. By 2008, real GDP is expected to be $124.2 billion higher than it would be in an environment without IT software and services offshore outsourcing. … but this is good for the economy

A June 2004 report by the US Department of Labor states that in the first quarter of 2004, less than 2 per cent of job losses in the non-farm private sector were due to outsourcing.

When $1 of labor cost is outsourced from the US, the total value created globally is $1.45 to $1.47. Out of this, the receiving country, India in this case, captures just 33 cents. The remaining $1.12 to $1.14 is captured by the US

According to a study sponsored by the ITAA (Information Technology Association of America), the benefits of offshore IT outsourcing added $33.6 billion to real gross domestic product in the United States in 2003. By 2008, real GDP is expected to be $124.2 billion higher than it would be in an environment without IT software and services offshore outsourcing.

… and a growing economy creates new jobs Traditionally, the US economy has been a huge job creating machine McKinsey estimates that between 1983 and 2003, two million manufacturing jobs were lost in the US. But 36 million new jobs were created in services. Many of these were jobs that people didn't know even existed before. Over a 10 year period from 2000-2010, McKinsey expects that while two million service jobs will be lost through offshore outsourcing, 22 million new jobs will be created. Technology and medicine are expected to be major drivers for job creation. "Stop Blaming Bangalore For Our Jobs Problem", Fortune, Apr 2004 "UBS Study Finds Outsourcing Not Big Hit to U.S. Jobs Market", The Wall Street Journal, Oct 2004

Traditionally, the US economy has been a huge job creating machine

McKinsey estimates that between 1983 and 2003, two million manufacturing jobs were lost in the US. But 36 million new jobs were created in services. Many of these were jobs that people didn't know even existed before.

Over a 10 year period from 2000-2010, McKinsey expects that while two million service jobs will be lost through offshore outsourcing, 22 million new jobs will be created. Technology and medicine are expected to be major drivers for job creation.

"Stop Blaming Bangalore For Our Jobs Problem", Fortune, Apr 2004

"UBS Study Finds Outsourcing Not Big Hit to U.S. Jobs Market", The Wall Street Journal, Oct 2004

Why India? Two million graduates each year (Existing Pool: over 25 million) 100,000 fluent speaking English graduates 120,000 Engineers every year vs. 63000 in US English speaking and IT savvy workforce Cost reduction up to 50% In most cases the offshore BPO vendor is able to hold labor costs at ¼ - ½ of the of the rates in the US DATAMONITER ,a leading UK leading UK-based business information company, research indicates that 67-72% of costs to call centers operating in the US/UK is directly linked to man power costs. India, on the other hand spends only 33-40% of costs In the field of information technology and computer software Indian experts have proved their worth beyond doubt.

Two million graduates each year (Existing Pool: over 25 million)

100,000 fluent speaking English graduates

120,000 Engineers every year vs. 63000 in US

English speaking and IT savvy workforce

Cost reduction up to 50%

In most cases the offshore BPO vendor is able to hold labor costs at ¼ - ½ of the of the rates in the US

DATAMONITER ,a leading UK leading UK-based business information company, research indicates that 67-72% of costs to call centers operating in the US/UK is directly linked to man power costs. India, on the other hand spends only 33-40% of costs

In the field of information technology and computer software Indian experts have proved their worth beyond doubt.

Top 15 BPO’s in India GenPact WNS Wipro BPO HCL BPO Services ICICI One Source IBM Daksh Progeon (Infosys BPO) Aegis BPO Services EXL Holdings 24/7 Customer MPhasiS BPO Intelenet Global Services GTL TCS BPO Transworks - Nasscom 2005-06 Survey

GenPact

WNS

Wipro BPO

HCL BPO Services

ICICI One Source

IBM Daksh

Progeon (Infosys BPO)

Aegis BPO Services

EXL Holdings

24/7 Customer

MPhasiS BPO

Intelenet Global Services

GTL

TCS BPO

Transworks

- Nasscom 2005-06 Survey

Indian Market size estimates of BPO Nasscom has estimated that the Indian ITES industry will gross over $5.7 billion by 2005 (based on a conservative year-on-year growth of 65 percent by Nasscom). Nasscom-McKinsey: In 1999 they estimated by 2008 it will be $17 billion but it has been revised to $21-24 billion by 2008. Indian can capture 25% of global BPO offshore market and 12% of the market for other services such as animation, content development and design services. Gartner: $1 billion (2002), $1.2 billion (2003). $13.8 billion by 2007. Gartner does not incorporate animation, medical or other (legal) transcription services, GIS, market research, data search, research and development, network consultancy and other non-business processes in its estimates on the ITES market size and potential.

Nasscom has estimated that the Indian ITES industry will gross over $5.7 billion by 2005 (based on a conservative year-on-year growth of 65 percent by Nasscom).

Nasscom-McKinsey: In 1999 they estimated by 2008 it will be $17 billion but it has been revised to $21-24 billion by 2008. Indian can capture 25% of global BPO offshore market and 12% of the market for other services such as animation, content development and design services.

Gartner: $1 billion (2002), $1.2 billion (2003). $13.8 billion by 2007. Gartner does not incorporate animation, medical or other (legal) transcription services, GIS, market research, data search, research and development, network consultancy and other non-business processes in its estimates on the ITES market size and potential.

Comparison of India Vs US BPO operating costs Source: Industry Sources, Merill Lynch 2003 (From the Nasscom Strategic Review 2003) 20% 11,854 58,598 TOTAL EXPENSES 50% 1,500 3,000 Depreciation 33% 847 2,600 Property Rentals 155% 2,328 1,500 Telecom 12% 1,000 8,571 G&A Expense 14% 6,179 42,927 Personnel (Full Time Employee) India as % of US costs India United States US$ Cost per FTE

Cost Difference

What next for India's BPO sector ITES exports accounted for $3.6 billion in revenues, up from $2.5 billion in 2002-03 and $583 million the year before It created employment for around 74,400 additional personnel in India during 2003-04. The number of Indians working for this sector jumped to 245,500 by March, 2004 from just 35,000 people in the year ending March 31, 2002. By the year 2008, the segment is expected to employ over 1.1 million Indians. New Sectors Financial services HR outsourcing Legal outsourcing Animation outsourcing. Radiology sector

ITES exports accounted for $3.6 billion in revenues, up from $2.5 billion in 2002-03 and $583 million the year before

It created employment for around 74,400 additional personnel in India during 2003-04. The number of Indians working for this sector jumped to 245,500 by March, 2004 from just 35,000 people in the year ending March 31, 2002.

By the year 2008, the segment is expected to employ over 1.1 million Indians.

New Sectors

Financial services

HR outsourcing

Legal outsourcing

Animation outsourcing.

Radiology sector

Animation Outsourcing MUV Technologies – India could take over from Korea as costs are rapidly increasing. India has the second largest entertainment industry in the world. Legal transcription involves conversion of interviews with clients or witnesses by lawyers into documents which can be presented in court Similar judicial processes. Forrester Research, predict that by 2015, more than 489,000 US lawyer jobs, nearly eight per cent of the field, will shift abroad. Payroll and benefits processing Gartner has forecast HR BPO to reach $51 billion and represent 39 per cent of all BPO revenue by 2004-end. Legal Outsourcing HR Outsourcing

MUV Technologies – India could take over from Korea as costs are rapidly increasing.

India has the second largest entertainment industry in the world.

Legal transcription involves conversion of interviews with clients or witnesses by lawyers into documents which can be presented in court

Similar judicial processes.

Forrester Research, predict that by 2015, more than 489,000 US lawyer jobs, nearly eight per cent of the field, will shift abroad.

Payroll and benefits processing

Gartner has forecast HR BPO to reach $51 billion and represent 39 per cent of all BPO revenue by 2004-end.

Statistics regarding number of employees Vs revenues sector wise in India Source: Nasscom 2,350 1,71,100 Total 465 44,000 Content development 310 25,000 Administration 210 11,000 Payment service 45 2,100 HR 510 24,000 Finance 810 65,000 Customer care Revenue (in $m) Employment 2002-03 Service Area Growth trend of the outsourcing industry

Government Policy Have reduced licensing requirements and made foreign technology accessible Actively promoting FDI, removed many restrictions on investments and made the process easier. Have been formulating and implementing more transparent and investor friendly policies. Recognizing the importance of venture capital funding, the Ministry for Information Technology has set up a National Venture Fund for the Software and IT industry with a corpus of about Rs 100 crore. The aim is to help software professionals startup small IT units.

Have reduced licensing requirements and made foreign technology accessible

Actively promoting FDI, removed many restrictions on investments and made the process easier.

Have been formulating and implementing more transparent and investor friendly policies.

Recognizing the importance of venture capital funding, the Ministry for Information Technology has set up a National Venture Fund for the Software and IT industry with a corpus of about Rs 100 crore. The aim is to help software professionals startup small IT units.

Problems faced by the BPO Sector Attrition BPOs in India are expected to employ around one million people by 2008, but the challenge is to find quality human resources given the current attrition rate of around 35-40%. Currently it is about 35% in non-voice and 45% in voice call centers. However what the number don't show is that more than 60% of those who leave a particular BPO do not leave for a competitor, but leave the industry as a whole. Here lies the danger for this sector.

Attrition

BPOs in India are expected to employ around one million people by 2008, but the challenge is to find quality human resources given the current attrition rate of around 35-40%.

Currently it is about 35% in non-voice and 45% in voice call centers.

However what the number don't show is that more than 60% of those who leave a particular BPO do not leave for a competitor, but leave the industry as a whole. Here lies the danger for this sector.

Future Threats The cost of telecom and network infrastructure is much higher in India than in the US. The anti-outsourcing legislation in the US state of New Jersey. Three more states in the United States are planning legislation against outsourcing Connecticut, Missouri and Wisconsin. US Senate has banned federal contractors from outsourcing overseas. Workers in British Telecom have protested against outsourcing of work to Indian BPO companies. Other ITES destinations such as China, Philippines and South Africa could have an edge on the cost factor. Slowdown of demand

The cost of telecom and network infrastructure is much higher in India than in the US.

The anti-outsourcing legislation in the US state of New Jersey. Three more states in the United States are planning legislation against outsourcing Connecticut, Missouri and Wisconsin.

US Senate has banned federal contractors from outsourcing overseas.

Workers in British Telecom have protested against outsourcing of work to Indian BPO companies.

Other ITES destinations such as China, Philippines and South Africa could have an edge on the cost factor.

Slowdown of demand

India’s Competitors Good only for low-end jobs Immediate neighbor of US, 30% cheaper than US; Spanish skills Mexico Small talent pool; high costs European language skills Czech Republic, Hungary Poor infrastructure; corruption; language Technology skills Russia Quality of English not good Low costs China Skill shortage Time zone similar to Europe; 25% cost saving, good for niche work South Africa High costs Understands the US market; high-end skils Canada, Ireland, Australia More expensive than India; small talent pool Understands the US market; voice work; low attrition Philippines Limitation USP Country

Problems in Outsourcing Can lead to the alterations of well established job processes that can lead to unnecessary delays and conflicts. Lack of coordination between people having different cultural backgrounds and different time zones can also lead to time losses. Most of these suppliers handle many processes from different organizations and in many cases, may even be providing services to organizations that are rivals or direct competitors of each other. This gives rise to a situation of the information being leaked. Vulnerability of strategic information

Can lead to the alterations of well established job processes that can lead to unnecessary delays and conflicts.

Lack of coordination between people having different cultural backgrounds and different time zones can also lead to time losses.

Most of these suppliers handle many processes from different organizations and in many cases, may even be providing services to organizations that are rivals or direct competitors of each other. This gives rise to a situation of the information being leaked.

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