Goa Agenda 2005
Business Process Outsourcing
Abstract - Pg.2
Research & Development - Pg. 4
Software Development - Pg. 13
Business Process Outsourcing - Pg. 22
Acknowledgements - Pg. 38
Abstract of the GOA – AGENDA 2005 CONFERENCE
The model of Outsourcing is being taken up by both developed and developing
economies across the globe. This is an exciting challenge and a lively and
controversial topic , and was discussed in depth by the leading visionaries of the
industry, academia and technical evangelists who gathered for two days (4 th & 5th
Feb 2005) in the sylvan surroundings of India’s one of the beautiful , serene and
promising state i.e. Goa.
The key issues which were discussed and debated included a wide spectrum of
topics, which tried to explore as to how this profitable, socially and economically
beneficial business model evolved. The experts tried to look into the “Challenges
of Outsourcing in this new era “ through a well-defined and structured
programme, beginning from evolution to maturity. The structure of the
programme was as follows :
a) The Common Impact – Social, Economical and Political Opportunities
and Concerns – The issues which were focussed in this topic mainly dealt
with how the social and economic factors like cheap labour, cost arbitrage,
availability of technical expertise, geographical proximity, employment
opportunities etc. The threats of loss of employment in the countries who
usually outsource their work, how outsourcing can reduce corruption etc
were given more stress and many perceptions and conclusions were
drawn. These conclusions and details gathered from the conference forms
the basis of this paper.
b) Research and Development -The facts and figures which were quoted by
the eminent academicians and Industry Captains included a prominent
figure i.e the total R&D expenditure for the current decade will be of the
order of US $ 280 billion. The visa difficulties prevent companies from
hiring foreign scientists and so the projection of many high quality jobs
getting shipped to the developing countries where there is ample qualified
personnel available. This portends another very important fact that there
can be shortage of highly qualified personnel. Thus more and more
universities should fund more quality research projects where the pool of
manpower is developed to a large extent. The few concerns which
became apparent and unanimous among the speakers were as follows:-
a) Availability of qualified personnel.
b) Availability of high quality graduate and postgraduate education.
c) How can the Industry foster more R&D initiatives among the
students, across the Universities?
c) Software and Product Development- The chicken and egg situation
evolved out of the discussion. Was it BPO which evolved first or was it Software
Development which helped propelled the evolution of BPO sector. The
challenges , growth of software industry in India and the various growth
prospective ahead were discussed. One area where the experts focussed more
was the Open source Software, which has become the real threat for the
commercial software market, both across the globe and India. Also there is a
trend in the type of work the, being offered by the Software vendors. Its more of a
business Solution which is offered by many software vendor. They have
graduated from Software Solutions Company to Business Solutions Company, as
pointed out by Director on Board of Infosys, Sri Srinath Batni. Moreover , few
speakers also put some light on the issue of the current level of education which
is demanded by the Industry and what should be the set standards , what are the
current evolving technologies and where the Software Training should be
d) Business Process Outsourcing – This was the main theme of the
Conference and the ideas which kept generating about the nature of the
business and where is this Country which has earned the “Back office” of the
World as well as the Global Outsourcing Industry, were very enriching for the
delegates and to the overall political, social and economic community of this
part of the world. The main issues which the speakers tried to discuss and
which ahs been explained in great detail are as follows
• How to explore the new opportunities?
• How to expand in smaller cities and towns and us the cost as well as
technical arbitrage of smaller cities and towns?
• How can this Industry become a trendsetter in raising social equity and
responsibility to a new level?
This paper will focus primarily on issues, which came up in the conference and
the few conclusions, which were made. Its imperative for our nation that the
progress initiated by the IT Industry sustains itself and the Industry grows rapidly.
We hope this paper will be of help to the government, industry and the
community as a whole, and can help focus on issues more effectively, for our
nation to take both proactive and preventive actions.
Chapter 1 R & D :
`Outsourcing has got a really bad
rap. What people don't realize is that
it's been going on forever. What do
people do when they don't want
to do the grunt work?
Kevin Yan, co-founder and CEO of
India, the favoured destination for the outsourcing of software development, is
also attracting outsourced research and development projects.
A study by Research and Markets of Ireland found that R&D outsourcing to India
will grow from $1.3 billion in 2003 to $8 billion by 2010. Growth in R&D
outsourcing has been boosted by the outsourcing of services. Now, overseas
companies that used India as a low-cost base are beginning to exploit Indian
As many as 150 R&D centres have been established in India. Texas Instruments
Inc. led the way in 1985, followed by Intel, Motorola, IBM and Cisco. Recently,
Advanced Micro Devices indicated it will design and develop a new processor
from its centre here.
In India, R&D outsourcing existed even before 'outsourcing' became a fad.
Outsourcing models for R&D vary, from captive to third party to contract
assignments and the pioneers are from the information technology industry. The
success of Indian R&D centres is attributed to factors such as good
management, an emphasis on quality, strong ties to universities and clear
roadmaps. The growing number of R&D centres also built on the successes of
The Agenda: Following was the agenda for this session. The items in this
session were debated and deliberated in details.
Research & Development definitions :
• "Research" - when you don't know what you are making
• "Development” when you know what you want to make but don't know
how to do it
The session also tried to come out whit the characteristics of R&D. They have
listed some of them as below :
• Research is inward looking activity
• Abstract thinking concrete working
• Demands huge investments
• Long gestation periods
• Investment necessary but not sufficient
• Human intensive activity
• 20% inspiration and 80% perspiration
• Core Research v/s Applications
• Core research in IT is in Algorithms
• Applied research in IT requires domain specific knowledge
• Real world problems do not come neatly compartmentalized
• Real world problems are seldom completely solved, they often get
Companies across a broad range of industries are showing increased interest in
business process outsourcing (BPO) as a strategic approach to managing their
business processes. At the same time, many vendors have been expanding into
BPO, tying their companies' future growth to the expansion of their BPO services.
Continued evolution in BPO has meant fundamentally rethinking how to assess
and identify market opportunities. IDC's BPO Services: Market Opportunities by
Key Business Processes with Vertical Views service not only offers valuable
insight into the dynamics, size, and scope of BPO market opportunities through
encompassing all the research within the core BPO Services: Market
Opportunities by Key Business Processes program, but it also provides
additional analysis of end users' budgets, spending trends, and priorities within
17 industries and four different company size segments. Subscribers to this
service receive direct access to IDC's top industry experts, who can supply
competitive analysis and positioning advice, identify strategic partnering
opportunities, assist with speaking to the investment community, provide press
quotes, and more. The following is a comprehensive overview of the industry-
specific research elements addressed by the vertical views portion of this
Changing Face of R&D
• Problems are complex & interdisciplinary
• It’s no longer lone activity, its a teamwork
• Not one person knows all
• Today's Research is networked
• Academic research - publication or patent
• Industry research - patent or product
• Academia & Industry - better synergy
• Use of external agents to perform one or more organizational activities
• Concept that long existed in other industry
• IT outsourcing can be traced back to 1963
• Boom in IT outsourcing started in early 1980
• IT was considered as non-core activity and could be left to the experts
Indian vendors have only been able to tap a market share of 2% of the global IT
Services market currently and need to tap new service lines in order to capture a
market share of 4.6% of the worldwide IT services market by 2008. In the ITES-
BPO segment too, India has a market share of 2% currently and will need to
target new service lines such as Engineering/R&D, logistics and sales to capture
a share of 4.8% by 2008.
• Started with Manufacturing
• Then low level programming
• Then Electronic Design
• Then Call centre, Customer support
• Then R & D
Outsource Why & What?
• Why outsource?
o Manpower cost & availability (transaction cost)
o Accountability & delivery (quality of service)
o Need to focus on core competencies
• What is outsourced?
o Non core activity
o Mundane & routine activity
o Activities requiring expert knowledge
Factors Favouring Outsourcing
• Low salaries
• Skilled workforce
• Good University system
• Good communication infrastructure
• Stable political structure
• Efficient business conditions
• No insurmountable cultural barrier
• Culture of quality & qualification
• Work ethics
• Language Skills
• Time Zones differences
• Hidden cost associated with outsourcing
• Loss of Control & dependency on vendor
• Loss of technical expertise
• Security issues
• Poor intellectual property protection
• Loss of flexibility
• Loss of jobs
Despite increasing evidence that US companies are not achieving the types of
cost savings they anticipated when entering into outsourcing contracts, in the
field of Research and Development the savings still heavily outweigh the costs.
While in some fields the wage differentials have shrunk to the point that including
administrative costs in offshoring makes it hardly worthwhile, R & D continues to
offer huge multiples for western firms. The profitability of such contracts is
evidenced by the more than 500% growth of Indian pharmaceutical firms in
recent years, a rate driven primarily by western outsourcing.
"While the average R&D cost in the US is
$400,000, it is $250,000 in Europe and only
$50,000 in India," Motti.
R & D Outsourcing Offers Huge Cost Savings. India is the best option to go for
any type of R & D work. There are many reasons why organizations choose to
outsource functions and services. The following is a list of common reasons why
outsourcing is undertaken:
* Lower costs
* Specific supplier benefits. For example, better security, continuity, etc
* Higher quality service due to focus of the supplier
* Less dependency upon internal resources
* Control of budget
* Faster setup of the function or service
* Lower ongoing investment required in internal infrastructure
* Lack of internal expertise
* Increase flexibility to meet changing business conditions
* Improve Risk Management.
* Acquire Innovative Ideas.
* Turn fixed costs into variable cost.
Sharad Saxena adds to this.
A recent study conducted by India's Associated Chambers of Commerce and
Industry indicates that Indian outsourcers are losing market share to countries
such as China, the Philippines, Malaysia, Mexico and Canada. Gartner echoed
this conclusion as they predicted Indian market share would fall from 80 percent
to 55 percent by 2007. This change indicates that despite an initial thrust
towards english speaking India, western corporations are re-examining the
benefits of outsourcing and concluding that a number of near-shore providers,
Canada and Mexico, or cheaper far-shore, China, are providing more beneficial
Wipro Ltd., India's third largest computer software exporter, announced that its
profits have climbed 58 percent to $363 million for 2004. The growth has been
primarily due to surging demand for software and back-office services. Despite
predictions of a long-term decline in demand for outsourcing services from India,
top firms are continuing to flourish. Predictions abound, however, that as wages
continue to increase and the Rupee holds steady the cost differential and thus
incentive for outsourcing to India will decline, making the future of these firms
dependent upon their ability to diversify services provided.
Mr. Arun Kumar, Chairman, NASSCOM says, "India's presence in the global IT
Services market is today more focused to custom application development and
application outsourcing, which forms only 10 percent of the global IT services
market. A significant potential also exists in service lines such as Network
infrastructure management; IS outsourcing; IT Training and Education; Hardware
support and Installation; and Network consulting and integration where Indian
vendors have negligible presence currently. With Off shoring becoming more
mainstream, Indian IT companies are expected to penetrate new service lines
such as Systems integration (accounting for 22% of global IT services market);
Packaged Software Support and Installation (13%) and IT Outsourcing (18%)".
Mr. Kiran Karnik says , "Significant opportunity exists for Indian ITES vendors in
new areas in the ITES-BPO segment such of Sales, Legal, Engineering/R&D and
Logistics. Worldwide ITES-BPO spending for 2006 is projected to be US$ 165
billion for Sales, US$ 163 billion for Legal, US$ 123 billion for Engineering/R&D
and US$ 308 billion for Logistics."
Current and Potential share of India's IT Services exports worldwide by
Current and estimated share of IT Service lines in India's total exports
Current and estimated share of IT Service lines in India's total exports
Current and Potential for ITES-BPO Exports by Service Lines
Source: New service lines will boost growth in ITES-BPO February 14, 2003.
UNDERSTANDABLY, many Indians took umbrage at the wave of protectionist
rhetoric that engulfed the American election campaign. Not only do they point to
the endless lectures they have received from Americans in years past on the
benefits of globalization and open markets. They also resent an insinuation
underlying the debate over “outsourcing”: that all countries such as India have to
offer is cheap labour and a telecommunications link. Just look, they say, at the
extent of the high-end research and development (R&D) work being undertaken
Or, rather, they say so in private. In public, conscious of western fears of the
migration of ever more technically demanding and high-paid jobs, many Indians
have recently concluded that the best strategy is not to draw attention to
themselves. The ultimate American nightmare is not just about white-collar
employment, but the loss of the country's great international advantage: the
ability to innovate. So a veil of discretion is masking some of India's R&D
achievements. Industry lobbyists are playing down this aspect of India's success.
Some multinationals, such as IBM, are loath to discuss it at all. Others, such as
Texas Instruments, boast that they “have increased design resources around the
world”, but make sure to add that “this has been accomplished without
transferring significant numbers of jobs to India”. Indian IT firms are stressing
that, great as their contributions are, the real cutting-edge, innovative work is
done in their clients' laboratories in America.
Some veterans of the Indian technology industry are truly sceptical about the
potential of Indian R&D. Lakshmi Narayanan, chief executive of Cognizant, a
New Jersey-based IT-services firm with big operations in India, argues that the
country does not yet have the capability to develop its own intellectual property.
So far, he says, R&D's contribution to overall growth is “minuscule”, and where
multinationals, such as Cisco Systems and Nortel, have contracted work out to
Indian services firms it has been in upgrading old products, not developing new
lines. Satyam Cherukuri of Sarnoff, an American R&D firm, argues that, of the
three requirements for developing an innovation-driven industry, India has two:
the technical skills and access to capital. What is missing is an indigenous
How did we get here
What is being outsourced?
• Application Development
• Engineering/Design Services
• Application Support and Maintenance
• R&D Work
The trend began in the mid-1980s
• Research Bases already in India
o Texas instruments.
What’s in the air?
• “Firms are now beginning to exploit the intellectual calibre that is available
• “US companies want to come to India because of the quality of the work.
In India the time to market is low and you have the flexibility to scale up
the high quality resources as per your requirements”.
• "We've transformed our R&D operations to ensure our focus is bringing
solutions - 10 years ago, focus was 5 to 8years. Now, it is is 1-5 years.
That's changed the way we construct R&D teams."
• “Can create teams without worrying that I'll have to make hiring and firing
decisions down the road- staff up to meet the peaks and valleys of the
• “Last evening's problems actually get converted to this morning's
IT Outsourcing in general
Benefits Costs Risks
Low Cost Vendor selection costs Loss of knowledge
Less time to market Transition costs Security breach
Less recruiting Severance and Retention Potential poorer quality
Refocus/Quality/Flexibility Contract Management costs Language and cultural
Recommendation – Keys to Success
• Clear vision, knowledge and focus.
• Well defined process management.
• Continuous assessment.
• Risk management.
• Resource flexibility.
• Financial/cost benefits.
• Strong protection of trade secrets.
• Quality of service.
• Size and stability.
• Brand and image.
China, Vietnam, Philippines, Russia and other East European countries who are
equally cost effective and are increasingly improving their English language skills
Outsourcing is no longer a trend, but a serious option
India has become a preferred destination for R & D outsourcing in
• IT – software/hardware
It’s not just software!
• Aston martin has contracted prototyping its latest luxury sports car to an
• Wal-mart sources $1 billion worth of goods, half of its apparel, from India.
• Two-thirds of GE plastics' 300-member research team is in India.
• 9 out of every 10 diamonds sold in the world are either cut or polished in
• TVS motor company has been awarded the coveted Deming prize for total
It will only grow bigger
"There is no competition between India and Israel in IT," said Olmert, who is also
the minister for industry, trade, labour and communications, during a visit to
Bangalore. "India is so much bigger and has so many talented engineers who are
much less expensive than our engineers in Israel. We have to use our relative
advantages, and do R&D for the world market."
Olmert added that companies from both countries would meet to discuss
collaboration. "We don't have a shortage of engineers in Israel relative to our
size," he said. "Their quality is very high, but their cost is also high. We need to
find a balance between using the innovation of Israeli engineers and the proven
skills in software development and implementation of Indian engineers."
Software suppliers around the world operate development and services
subsidiaries in India, or outsource to Indian companies. But Olmert said that
Israel's interest in India's software and services capabilities went beyond
outsourcing and included collaborating on R&D and product development.
The visit of Olmert's Israeli delegation to India follows a visit by Russian president
Vladimir Putin and a trade delegation of Russian IT companies. Besides inviting
Indian software and services companies to set up operations in Russia, the
Russians also met with executives of Indian outsourcing companies to explore
collaboration between Indian and Russian IT companies.
Outsourcing of R&D activities is the next wave, and one which will establish India
as “The Outsourcing Destination”, which gives real business benefits than just
cheap labour costs.
Chapter 2 : Software Development
`Outsourcing has got a really bad
rap. What people don't realize is that
it's been going on forever '
Kevin Yan, co-founder and CEO of
The BPO boom seems to be attracting companies in large numbers. After the
likes of captive players like GE, and pure-play companies like Daksh, the latest
entrants in the BPO ring are the who’s who of the Indian IT industry like Infosys,
Wipro, Satyam, TCS, Digital Globalsoft, HCL Technologies and Mphasis BFL
etc.They have all got into the game, either through subsidiaries or separate units
within the same company.This paper will look at the strategies Indian software
players are adopting to tap a market that is estimated to grow to $21 billion by
2008. After a disastrous year, when Indian software companies were testing
different survival strategies, they discovered a messiah in Business Process
Will the BPO plan work for Indian companies?
For Indian software companies, entry into the BPO business is clearly a way to
not only increase the topline, but also to address a larger part of the market
space. Looking at the way pure-play BPO companies have been grabbing
business, Indian software services companies too have been increasingly
searching for a way to get into the BPO business. While the differences between
software development and BPO far outweigh similarities, Indian players clearly
don’t want to miss out on an opportunity which even non-IT companies are
NASSCOM estimates that about $7-8bn worth of work may not have come to
India because of security concerns. Clients are convinced about delivery of IT
and BPO services from India but security concerns loom large in any discussion
around offshoring IT services and BPO work to India. Sunil Mehta, vice
president, Nasscom says : “Security issues are being used as an excuse to not
to offshore work to India.” .
A recent study by Frost & Sullivan (India) has brought out the following facts
about the recent trend in more outsourcing opportunities . Hit by the global
economic slowdown and tech meltdown, software firms are looking at constant
revenue streams and steady net margins. In such a scenario, BPO represents
the best opportunity. By foraying into the BPO segment, software services
companies are looking at improving cost efficiencies by moving operations
offshore for their existing as well as potential clients. Also, in the services
industry where customer relationships play a vital role, having a presence in the
BPO space would place software firms in a vantage position against competition.
In addition, by controlling the maximum levels in the value chain, software
companies can not only commit high-quality levels to their clients but also look at
long-term strategic outsourcing alliances with them.
But one challenge which Indian companies have to realise is that software
services and BPO are dissimilar, and require different skill-sets, though there
may be some skill-sets which could be transferred to the BPO subsidiary. BPO is
a strategic move with long-term commitments and long-term implications. Selling
and delivering business processes require different skill-sets compared to
traditional IT services outsourcing. Even the decision makers that need to be
targeted are different, at the CEO/COO level, and the issues they need to be
convinced about for BPO services are very different from what a CIO needs to be
convinced about for IT services. However, as Indian IT services vendors have
built a credible India brand, it would be easier for such companies to convince
potential clients to sign on the dotted line than it would have been without this
Strategies of Indian players
Infosys has set up a separate subsidiary named Progeon for its entry into the
BPO space. Says an Infosys spokesperson, “Our BPO foray is part of our
initiative to increase the length and breadth of our services and extend
relationships with our clients. But we set up the BPO company as a separate
entity as the skill-sets, resources and execution model are different from that of
our core business.” Infosys has also decided to go in for a build-option rather
than a buy-option, by forming a separate subsidiary. As Infosys has a strong
client-base, the company thought it prudent to tap its existing clientele, which
would enable it to grow organically.
On the other hand, the strategy of Wipro has been to buy and then build. For
instance, Wipro made a smart move by picking up a stake in Spectramind, thus
giving it a competitive edge against other Indian players. Says Balakrishna R,
practice head for BPO at Wipro, “The key for us was to get a quick start with an
established player and experienced management team. It would have been time-
consuming to build this from scratch. Additionally, the investment in Spectramind
is a fair investment from a financial standpoint. The call centre business has
good growth potential, and this investment allows us to participate in this
business opportunity as we go to market initially with this offering. With this
strategic investment, Wipro has strengthened its BPO offerings with the inclusion
of backroom processing services and customer contact services in its portfolio of
While the build-or-buy decision varies from one software company to the other,
both the options hold interesting pointers for the rest of the industry to follow. For
instance, going in for a build option allows a company to scale up as per market
needs. Additionally, this option offers a company like Infosys the opportunity to
gradually scale up operations to align completely with existing software service
practices. Moreover, a build option gives a company complete management
control and better quality control. But while this option helps a company to fine-
tune its BPO practices over a period of time, in terms of go-to-market strategy it
could prove to be a long wait.
So which strategy should Indian companies adopt? While both models offer
benefits, most analysts , as per research in the Industry, favoured the buy option.
The main reasons cited were – “As the already established BPO player has
established Industry practices and trained manpower and also a well established
customer base, there is a faster return on capital invested. Moreover, the Wipros
and Infosys of the world have the brand recognition, the smaller BPO firms have
the core competencies in the business”.
Infosys is looking at working together with Progeon to provide the client a
complete range of services that not only takes care of its technology
requirements but also process outsourcing needs. Progeon is banking heavily on
the Infosys brand name and its methodologies to gain a competitive advantage.
The frameworks developed for business process management which will be used
by Progeon will be based on the Infosys Influx methodology, which enables client
processes to be transitioned and executed smoothly. Initially, Progeon will focus
on the lucrative banking, financial services and insurance (BFSI) sector. Within
this sector, the focus will be on transaction processing and accounting services.
The company will offer these services in multiple forms—as business process re-
engineering, shared services platform, and business intelligence services—in
addition to the obvious cost advantage of executing the work in India.
Wipro too is counting on its immense experience in the software services space
to help create the same kind of brand in the BPO space. Additionally, Wipro’s
strengths in terms of quality by its SEI-CMM, SEI-PCMM, SEI-CMMi and Six
Sigma processes will be complemented by Spectramind as it is the first Indian
company to achieve COPC certification using the Six Sigma platform.
According a senior Spokesperson from Wipro , “BPO is a key strategic initiative
for Wipro and will be a growth driver. We see synergy in terms of a common
client-base and an expansion of our service offerings. The key message is that in
this space value is delivered in three waves. The first wave is delivered by
moving operations offshore. Wipro already has a strong presence here and has
an established and proven process for transitioning and sustaining operations.
The second wave of value comes from process optimisation. This comes in two
ways—by redesigning the process; and by changing the IT solution that supports
the process. These processes are transaction-driven; processes such as Six
Sigma can be very effectively used to take out cost on a continuous basis, which
constitutes the third wave.This along with Wipro’s financial stability and strong
account relationships helps us in being a serious player in this space.”
Mr. Batni, Director Infosys , explained a few challenges and perspectives about
• The software industry will chase talent.
• India’s huge base of strong technical talent: key competitive advantage.
• Education fundamental for the growth of the software industry.
• India has one of the largest higher education systems in the world.
• Quality of education varies significantly across universities.
• Lack of research focus in universities.
• Number of patents per million residents in India is 1, as compared to 779
in South Korea and 289 in the US.
• Number of scientists/engineers employed in R&D per 100,000 people is
149, compared to 3,805 in the US.
• Total employment in the Indian IT industry increased from around 30,000
in 1991 to nearly a million today.
• Infosys has grown from 300 employees in 1992 to over 35,000
• IT sector will employ close to 2.2 million people by 2008, of which the
ITES-BPO segment will employ 1.1 million people.
• Major challenge finding quality, educated professionals in smaller (tier 2)
BUSINESS PROCESS OUTSOURCING
BPO or Business Process Outsourcing is not simply another term for
outsourcing. It involves creating strategic value through outsourcing by creatively
examining the process and changing the way it is actually performed and is
therefore more than just changing hands. Here, the supplier not only takes on the
responsibility to take over the function or business process, but also to
reengineer the way it is done. That includes either applying new technology or
applying the existing technology in a new way. As a result, something about the
way the process is currently being done gets fundamentally changed even
though considerations of how the new process affects the buyer's company and
interacts with other departments and functions in it. BPO often increases a
company's shareholder value.
A BSP or a Business Service Provider, is an outsourcing service provider that
offers scalable BPO services through the Internet
Why are the jobs coming to India? This is one question dogging everyone from
politicians, businessmen, students, scientist and IT professionals to the common
The phenomenon seems to have been triggered off by the emergence of the
Indian economy on the global scene and its ability to attract jobs.
Situations Responsible for Job Outsourcing to India
A new era of globalization began in the 1980s and brought along a significant
decline in costs of transportation, communication, and production, and
considerably improved inter country competitiveness; and broke down trade and
cultural barriers among countries.
But for the ease in communication, offshore outsourcing could be unthinkable.
The shift from atoms to bytes and bits has made this possible. Distance has
become immaterial to many of today's business processes.
Government policies and backing.
India has written its success story not in spite of the chaotic, robust democracy,
but because of it. Decades of Socialist Democracy and affirmative action have
allowed the participation of the poorest, for whom education is the only way out.
This mindset has led to increased schooling. On another plane, Socialism and
import-substitution, produced generations of entrepreneurs who had to develop
indigenous products, from blades to satellites, with their own resources. That
self-reliance is helping India now: In the past two years, six companies have won
prestigious Deming quality awards ,and excellence has triggered a surge in
What was a few years ago cause for worry, has turned to India's advantage. The
growth of India's population is a big factor in the whole scenario. If it were not for
the teeming millions in the country and the government's inability to provide
employment to them, the workforce would not have offered cheaper services and
appear satisfied to boot. The workforce is too happy to land a job in the first place
to bother too much about the salary. Moreover the salary structure has always
been low in India so whatever the workforce earns from outsourced jobs is much
more than he would go anywhere else.
The economic factor has been greatly highlighted in this issue. Even though it is
indeed a major factor in the process, analysts have been overlooking the other
very important factors. It is true that if it were not due to economic reasons
outsourcing would have never happened. It works both ways for the people who
outsource as well as for those that take up the jobs. Cutting costs has been the
major concern of companies who are faced not only with recession but also with
growing competition. Coupled with that is the growing stature of a fussy and
smart consumer who wants the best for the least. Development of easy
transportability and service delivery has given the consumer a global market and
he is willing to make the best of it. This has made it imperative for companies to
deliver to the demands of the consumer. Developed nations have had a good per
capita income. Their workforce is used to the high wages and is therefore
unwilling to comply with lower wages.
Being located on the other side of the world gives the advantage of time
difference to India and some companies find it a definite advantage. In fact many
companies are giving users in Europe and the USA the choice to choose the
place of service in processing their bills and insurance documents, but always
warn them of the time advantage they get if they get their jobs processed in
India. Consumers are told that if they choose to process in India they may get the
required job done in a day or if they choose a local service they get the same
thing done in two days. The growing resentment towards Asians has also made
call centers provide an option.
Business Sectors Involved in Job Outsourcing
Information Technology/IT solutions
This sector has come out of it's Dot Com hangover and have landed solid and
confident steps into providing quality IT solutions. No more the small players
trying to make a fast buck, it's the old way of working towards trust of customers
and brand building. IT solutions include developing software solutions for almost
all areas of business and for all sectors, ranging from automotives and aviation to
transport and medical services to the media and retailing. IT consulting is the
other big thing in the IT sector. From low-end solutions like data entry to
Enterprise Application Integration almost every level of knowledge work is done.
Call centers are the flavor of the season. Every company worth it's salt is
investing in it. A huge part of human resources is being directed towards this
field. It is a rapidly growing field and a relatively easy field to enter. The English
educated generation of youngsters do not mind the night shifts as they are taken
in without being asked to show experience and are being paid a heavy packet -
amounts that only could be earned with hard years of slogging in any other field.
Thousands of Indians handle customer service, process insurance claims, loans,
bookings, and credit card bills.
Finance & Accounting Outsourcing FAO (Finance & Accounting Outsourcing) is a
fast growing sector. Accounts payable, followed by accounts receivable, were the
F&A functions most companies chose to outsource. Much of the outsourced work
is full-service in scope. Transactional relationships include accounts payable and
receivable, tax, payroll, internal audit, and fixed assets; whereas full-service
outsourcing includes the transactional part along with budget and forecast;
treasury and risk management; management reporting and analysis; and
Future Projections and Concerns
In the annual industry leadership forum called NASSCOM'04, leaders
unanimously agreed that the Indian market has reached the next level of maturity
and is set to grow. By 2008, forecasts McKinsey, IT services and back-office
work in India will swell fivefold, to a $57 billion annual export industry employing
4 million people and accounting for 7% of India's gross domestic product. That
growth is inspiring more of the best and brightest to stay home rather than
migrate. More than half of the Fortune 500 companies are already outsourcing
work to India. Research firm Gartner on the other hand claims 1 in 10 US
technology jobs will go overseas by the end of 2004. According to Forrester
Research, in the next 15 years, more than 3 million US white-collar jobs,
representing $136 billion in wages, will depart to places like India, with the IT
industry leading the migration. Additionally the telecom bubble has burst and
growth has been sluggish. Telecom majors like Lucent and Nortel are cutting
costs and trying to recover heavy investments. They are therefore looking at
Indian software companies to provide offshore solutions to manage their network
operations, support systems, billing software, OS integration and business
India sees this potential and is working towards meeting future demand for
knowledge workers at home and abroad. India produces 3.1 million college
graduates a year, which is expected to double by 2010. The number of
engineering colleges is slated to grow 50%, to nearly 1,600, in four years.
There's a growing movement to boost faculty salaries and reach more students
nationwide. India's rich Diaspora population too is chipping in. Prominent Indian
Americans helped found the new Indian School of Business, a tie-up with
Wharton School and Northwestern University's Kellogg Graduate School of
Management that lured most of its faculty from the U.S. Meanwhile, the six IIT
campuses are tapping alumni for donations and research links with Stanford,
Purdue, and other top science universities. "Our mission is to become one of the
leading science institutions in the world," says director Ashok Mishra of IIT-
Bombay, which has raised $16 million from alumni in the past five years. Since
2001, Delhi has been furiously building a network of highways. Modern airports
are next. Deregulation of the power sector should lead to new capacity. Free
education for girls to age 14 is a national priority. "One by one, the government is
solving the bottlenecks," says Deepak Parekh, a financier who heads the quasi-
governmental Infrastructure Development Finance Companies.
White collar jobs ranging from call centers to software engineers to medical
technicians are being "outsourced" to India resulting in comments from the White
House and the presidential candidates in the USA. This "outsourcing" is blurring
the lines in the globalization debate as well. When globalization mainly meant
that blue-collar jobs were going overseas, it was ok with many American
professionals who supported Globalization. Opponents of globalization, on the
other hand argued that only the bad, dangerous jobs were being sent
overseas...setting up a kind of sweatshop slavery. The scenario seems to be
drastically changing as really good jobs in glass office towers with air-
conditioning are now going overseas. Anyone opposing this is seen as a
hindrance to the development of a legitimate middle class, even if that means
more people of the country of origin are forced into the bad jobs.
If India can turn into a fast-growth economy, it will be the first developing nation
that used its brainpower, not natural resources or the raw muscle of factory labor,
as the catalyst. India desperately needs China-style growth. For all its R&D labs,
India remains visibly Third World. IT service exports employ less than 1% of the
workforce. Per-capita income is just $460, and 300 million Indians subsist on $1
a day or less. It has taken Infosys' Narayana Murthy to remind rapturous India
that with less than 2 per cent share of the global IT market, India is still a toddler,
not a superpower; that potential should not be mistaken for performance. Too
late! India is set to reap the harvest of its bragging.
At the end BPO is managed not as cost centres but value as a value centre.
The Indian Inc has taken a giant leap after its inception in 1947. Known only for
spices, cotton and cheap Labour it has completely transformed its image into one
of the fastest growing nations of the world. Being the fourth largest economy in
terms of purchasing power parity, it is now the tenth most industrialized
economy. India's advent in global scene was more strongly felt after globalization
and de-regularization. Since mid 1991 India has been embarked on economic
reforms, which aim to liberalize and globalize the economy. Globalization is the
inevitable outcome of the knowledge revolution.
However as compared to world's largest economy the US, India is still far behind
the scene. Despite the innate limitations and constraints on infrastructure,
unemployment, large scale poverty, competition from other growing economies,
corruption etc. the brand India has been able to develop a niche for itself. India
has already made a mark especially in ITES and B. P. O. sectors. Apart from
these India has a vast pool of highly learned and skilled professionals. The Indian
entrepreneurs are leading the globally competitive markets. India is now being
perceived as a low cost destination for manufacturing and outsourcing. With the
availability of highly skilled will cost human capital most of the multinational
companies are shifting focus to India.
The new picture of brand India: Unique, creative, highly talented, qualified,
skilled and cheap man-power, center of innovation in the world after Silicon
Valley, IT hub, techno-savvy citizens, aggressive companies, world class
institutions (IIT’s, IIM's, IISc etc), greater buying power, greater export market
share, surplus foreign exchange, state of the art R&D facilities, good
The Indian software and services exports have grown over the past 11 years at a
scorching pace of almost 50 per cent every year, from $128 million in 1990-91 to
$6.2 billion in 2000-01, which is quite an enviable and unmatched record. India's
software export revenues increased by 30 percent during 2002-03, with IT
services exports projected to grow by 22 percent. The ITES/BPO market has
witnessed high growth in the past two years, emerging as a significant revenue
generating area for India's software and services companies. ITES/BPO activity
accounted for around Rs. 11,700 crore of software export revenues during
2002-03, up from Rs. 7,100 crore in 2001-02.
General Electric first identified India’s potential in the mid-1990s when it shifted a
large number of back office jobs to the sub-continent. According to consultant
firm McKinsey, over 200 of the Fortune list of 1000 companies have been
outsourcing in India. And what has today become a mushrooming $1.5 billion
dollar for India is predicted to grow at a whopping pace to $21 billion by 2008,
according to British consultants Cushman and Wakefield.
The rationale behind outsourcing was never more clearly stated than by Hewlett-
Packard’s services head Ann Livermore when she said (quoted by CNET’s
News.com): “We think customers are going to put a lot of pricing pressure on the
consulting and integration market. We are going to aggressively move everything
we can offshore.”
Similar logic has been prompting global giants like GE, American Express,
Standard Chartered, HSBC, Delta Air Lines, America Online, and some 300
others from the Fortune 500 list, to do business with Indian IT services
companies, and that’s extending to BPO as well. Why, the Indian offshore
development model is so attractive that even the big boys of consulting, including
IBM, EDS, Accenture, KPMG, etc, are expanding their facilities in India, just to
remain cost-competitive with the likes of TCS, Wipro and Infosys. When you
have a company like GE stating that it saved $500 million last year because of its
ITES set-up in India, that’s very compelling reasoning indeed for myriad others to
Nasscom has been trumpeting that the American banking and finance sector
alone has saved $8 billion in the last four years due to outsourcing, and that
Indian companies and their affiliates contributed $215 million as taxes in the US
Even the US Chamber of Commerce believes BPO is good for the US economy
and makes good business sense even as it blames lack of information and
politics for the backlash. The Chamber of Commerce of the US is leading the
fight to preserve for the American companies the freedom and flexibility to source
and trade around the world.
Yet another study by the Forbes magazine last year, said, India remained the
prime destination of outsourcing for the American companies as the country turns
out 75,000 English-speaking IT professionals every year and has a low wage
structure. The study compared India with six other destinations – China, Russia,
the Philippines, Canada, Mexico and Ireland. While analyzing profiles of the
seven countries, the study praised India for its IT-friendly policies and
commitment to ensure best possible facilities for its development.
More companies are turning to India to do everything from software development
to back office work, Wall Street Journal report said: “Revenues for call-center
businesses grew by 46 per cent to nearly $4 billion during the financial year
Companies that have opened development operations in India, or are thinking
about doing so, include IBM, Hewlett-Packard, AT&T, Northern Telecom,
Siemens, British Telecom, Digital Equipment, Lucent and Computer Associates.
Non-technology giants like Citicorp have found that they can gain a competitive
edge in world markets by using proprietary, and setup there back office also in
India, to get both the price edge and the technical support of the developer,
couple with the vast pool of talent.
Today whosoever thinks of outsourcing India comes to their mind. Currently,
India occupies the premier position in offshore work because of technology;
massive infrastructure building (primarily because of software development hub)
that is creating a fundamental transformation. Perhaps somewhat uniquely, India
as a country has developed a powerful brand for itself particularly software
development and ITES/BPO. The domestic service providers have well thought
out business plans and are deep into there executes phases. At the same time,
the public and private sectors have joined hands to brand their offshore
capabilities--a message they have communicated clearly and globally.
Chapter 3 : Business Process Outsourcing
`They are pioneering the movement
of outsourcing to small and medium
If it succeeds it could be quite
profitable and significant'
Joseph D'Cruz, professor, Joseph
L. Rotman School of Management
at the University of Toronto
Business Process Outsourcing (BPO) is the way the business is and will be
carried out in the coming times.
With the evolution of the Information Technology and latest Communication
Technologies being implemented, the world has become a small village.
Information is being transferred from one point of the globe to any other at low
cost and good quality. Moreover, a significant change in management philosophy
has taken place since the 1990s. Organizations have switched emphasis to
concentrate on their core activities in order to increase market penetration and
become more competitive. It is now widely recognized that to compete
effectively, it is essential for business to concentrate on what they do best and
where they can add value.
Areas It Covers
With the rapid expansion of the BPO industry and the extent of its reach, it is
becoming increasingly difficult to define what a BPO exactly means. It
encompasses a wide variety of activities such as human resource, accounting,
financial research, marketing, sales, legal work, logistics, management
information systems (MIS) and so on. Software services are also regarded as a
part of the BPO market by many firms.
Why do the Companies Outsource?
For any company to outsource its business process to any third party, it is an
important decision which would reap significant dividends on the long run. So,
what are the motives of any organization to outsource its business processes?
The table below is indicative of this.
Reason to Outsource Percentage
Improve company focus 55%
Reduce and control operating costs 54%
Free resources for other purposes 38%
Gain access to world class capabilities 36%
Resources not available internally 25%
Accelerate reengineering benefits 20%
Reduce time to market 18%
Share risks 12%
Take advantage of offshore capabilities 12%
Function difficult to manage or out of 10%
Source: Outsourcing Institute
What Is Being Outsourced?
Now, along with the reasons to why the companies outsource their business
processes, we have to look at what is being outsourced. This would give us a
better understanding of what is the general trend of the outsourcing industry
world wide. The table below gives us the pertinent information.
What is Being Outsourced Percentages
Information Technology 55%
Distribution & Logistics 22%
Human Resources 19%
Contact Centers/Call Centers 15%
Real Estate/Facilities Management 11%
Source: Outsourcing Institute
The Scene Today
Today, most of the developed countries are into offshore outsourcing. The main
players in this arena are USA, Europe (UK being the dominant player), Japan,
etc. USA has the largest chunk of about 70% of the total outsourcing.
Segment wise break-up of the new Jobs in 2005
• IT & IT Services - An estimated 70,000 new Jobs expected in 2005. Plus
there will be additional hiring to replace industry attrition that is around
• BPO and Outsourcing services - Around 1,25,000 new Jobs expected in
• Retailing and Lifestyle - It will create close to 25,000 Jobs directly and
more than twice the number indirectly.
• Biotechnology - It is expected to create around 5,000 - 7,000 highly skilled
So we see from the above figures that outsourcing will result in huge amounts of
job generation and create unlimited employment opportunities.
A Win-Win Game
Yes it is a game. Outsourcing is a game in which there are no losers. It is a win-
win situation for both the parties concerned. Let us now see
How Outsourcing benefits the source country?
• There is a whole lot of cost savings for the outsourcer.
• The customer finally gets better products as the source company
concentrates on its core competencies.
• There is a growth in revenues.
• The labour force is re deployed in places where it is more required.
But at the same time, there are challenges before the source country as
• There are massive job losses in the source country due to the shift of jobs
to the destination country.
• This frequently results in low morale of the workforce.
• The present workers have to shift location in search of new jobs, which
leads to displaced families.
• The government has to bear the high cost of rehabilitation.
• The government also has to deal with the problem of xenophobic
Over and above the challenges before the source country, there are costs that
have to be considered. These cost are well depicted in the Total Management
Cost model shown below.
On the other hand, there are several benefits as well as challenges in front of the
destination country as well. Let us try to identify them.
Economic, Social and Psychological benefits to the destination country
• Outsourcing cerates huge employment opportunities in the destination
country. This helps the unemployed populace.
• The newly created jobs indirectly help the GDP of that country.
• Higher per capita income
• Higher standard of living
• Increased purchasing power
• Global exposure as a result of interaction with clients from all over the
• Boost in literacy and education to meet the qualification requirements of
• Better infrastructure to meet the expectations of the clients.
• High morale, positive attitude, high risk taking ability, global outlook, etc.
are seen in the destination country workforce.
Challenges before the destination country
• The youth of the destination country is less ambitious. This follows from
the fact that they tend to get less demanding jobs easily.
• The youth, as a reason of getting easy money, start having a spend thrift
• Due to the influence of the western culture, in the countries like India,
there is an erosion of the family values and beliefs.
• The workforce develops a superficial outlook.
The Indian Perspective
Now, having seen the benefits and challenges of outsourcing, let us now turn our
attention to the role of India as an outsourcers’ paradise.
Software houses from India have effectively provided many of the Fortune 500
corporations with efficient software solutions. These solutions have helped these
companies to be more responsive to their customers and more attractive to their
shareholders. No wonder, companies like Citibank, Morgan Stanley, AT&T,
General Electric, Reebok, General Motors, Fujitsu, Boeing, Coca-Cola, Pepsi,
Swissair and British Airways continue to remain ahead of their rivals, thanks to
the efforts of many software companies in India.
Offshore Development Centers
One of the unique methods adopted by Indian software companies for providing
competitive advantages to their clients is through offshore development centers
Offshore Development Centers (ODC) are a Virtual extension of clients’
development environment enabling complete linkage with the parent site in terms
of infrastructure and organization structure to deliver multi site solutions
Features of Indian ODCs
• World Class Infrastructure
• Well Educated Technical Manpower Resources
• Availability of State of the Art Technologies
• Well Maintained Quality Management System
• Intellectual Property Rights (IPR) Protection system well in place
Other Opportunities for India
• There is a huge untapped potential market
• Huge educated human resource
• Varied Business Options
• High employment potential
• Round the clock shifts available
• Cheaper capital equipment
Now just as every coin has two sides, there are few concerns too which might
thwart India’s progress.
Concerns for India
• Intense competition from countries like Mexico, China, Taiwan, etc.
• Hostile opinions in the source countries like USA.
• Unsustainable relative advantage in terms of language, infrastructure, etc.
China is soon catching up.
• The rising wages in the BPO industry are a matter of concern as we are
slowly loosing the cost advantage.
• The working schedules in the BPO industry, especially the Call Centers
have lead to stressful work schedules. This has resulted in several stress
related anomalies in the workforce.
• The job iteration rate has increased substantially over the years.
So, thought the Government of India is supportive and has clear investment
priorities with respect to the Outsourcing, we still have a long way to go to
overcome the challenges.
Now, after having talked about the Indian context on the outsourcing front, let us
talk about one of the most developed states of India, i.e. Goa.
Outsourcing – Goa at a Glance
The Goa government has announced the long overdue IT policy, which besides
giving several sops to the IT industry also focuses on streamlining the
administration for e-governance.
Several highlights of the policy are:
• Proposals of investment exceeding Rs. 50 crores and industrial houses
amongst top 20 companies, as per NASSCOM annual listing, will be
provided land at institutional rates
• local employment by IT/ITES companies to be rewarded to the extent of
30 percent of salary
• Stamp Duty reimbursement to IT/ITES units operating in IT designated
• Preferential Power Tariff for IT/ITES to be announced to the industry that
requires service levels of 99.99 percent uptime
Over and above the above policies, Goa has several other advantages.
• Large English speaking workforce
• Good infrastructure - One of the best in the country
• Special Industrial Estates
• Strong government support and initiatives
• Global outlook due to thriving tourism industry
• Excellent climate
• Ranked in the top three states in India on socio economic indicators
Challenges for Goa
• Location – away from the maddening crowd
• Perception that Goa is just for tourism
• Low go-getter attitude of the populace
• Less recognition in ITES and other fields as compared to other metros
So we see that Goa has to break free of the traditional shackles that it is only a
tourism state and jump in the ITES arena with its new liberal IT policies. Though
it will take some time for the international bodies to recognize the strengths of
Goa on the outsourcing front, Goa has a sure potential to be amongst the top
states on the IT front in India.
The BPO Industry is on a high today. India has carved a niche on the global front
and is well ahead in the race till now. So the future appears bright.
Revenues: If we look at the projected figures for the revenues per year for
estimating the Indian Market size for BPO, we get the following:
2002 2003 2004 2005 2006 2007
1,322 1,825 3,017 6,439 12,563 24,230
912 1,205 1,961 3,928 7,412 13,811
110,167 121,687 131,171 143,090 157,033 173,070
Figures in $ million Source: Gartner Dataquest (May 2003)
The revenue per year growth is substantial as seen from the above table.
Competition: But at the same time, we have to be wary of the competition from
other countries like Philippines, China, Mexico, etc. who are catching up with
India. Governments in such countries are taking significant steps to improve their
attractiveness for the information technology enabled services industry. Other
countries like Malaysia, the Carribbean, South Africa and Hong Kong have also
seen some information technology enabled services activity.
Organized Sector: Moreover, within India there are very few listed companies in
the organized sector. Otherwise, most of the players are in the unorganized
sector. There are some companies who are captive units of the MNC's. But,
there are very few companies providing third party services. So on the BPO front,
a lot of work has to be done on the front of the organized sector.
Language: With the increasing trend of outsourcing from companies in UK and
other countries to India, the need for Indian vendors to be able to employ people
who can work in languages other than English has increased. So far it seems
German and French will be required more than Spanish, Italian, Russian or
So finally before we conclude, let us have a look at SWOT Analysis for the
Indian BPO Industry.
• Highly skilled, English-speaking workforce.
• 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
• Lower response time with efficient and effective service.
• Recent months have seen a rise in the level of attrition rates among
ITES workers who are quitting their jobs to pursue higher studies. Of late
workers have shown a tendency not to pursue ITES as a full-time career.
• The cost of telecom and network infrastructure is much higher in India
than in the US.
• To work closely with associations like Nasscom to portray India as the
most favoured ITES destination in the world.
• Indian ITES companies should work closely with Western governments
and assuage their concerns and issues.
• India can be branded as a quality ITES destination rather than a low-
• 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.
• 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.
Chapter 4 : Social, Economical & Political Impact of BPO – Future
Findings of the session, Analysis, reality, & comments.
Business process outsourcing (BPO) is defined simply as the movement
of business processes from inside the organization to external service providers.
With the global telecommunications infrastructure now well-established and
consistently reliable, BPO initiatives often include shifting work to international
providers. Five BPO international hot spots have emerged around the globe,
although firms from many other countries are specializing in various business
processes and exporting services:
1. India. Engineering and Technical
2. China. Manufacturing and Technical
3. Mexico. Manufacturing
4. United States. Analysis and Creative
5. Philippines. Administrative
In an age of globalisation, more and more job sectors are being forced to
compete internationally in unprecedented ways. Workers in developing countries
– beneficiaries of improved education and training – can frequently offer high-
quality services at greatly reduced costs. Consequently, jobs are migrating to
these developing countries – to the Philippines, Malaysia, China and especially
On the one hand proponents see the trend as the natural outcome of
globalisation – and a positive impact at that – one that brings jobs and economic
development to developing countries. On the other hand there are justifiable
concerns for the loss of jobs and income in the US and Europe. At the same
time, there is some concern that well-paid but low- skilled service sector jobs
may be weakening developing countries by luring educated people away from
vital job sectors, or may not be helping countries move up the value chain to
higher-level products and processes.
To understand the socio-economic factors let us look at the holistic
scenario both in the developed countries and in India:
In Developed Countries:
In developed countries like the UK and the USA, employment in call
centres is not generally considered prestigious (although there are exceptions to
this rule), and they suffer from high turnover rates, high training costs, and
occasionally, problems in delivering a consistently high quality service. Many of
those attracted to call centre work consider it a stepping stone to better, more
highly paid positions in the future. As a result, call centres tend to have high
attrition rates, “up to 100% per annum for BT Directories,” according to BT Retail
Human Resources Manager Alun Evans. Staff turnover varies by sector but is
said to be highest in telecoms and information technology sectors and the
banking and financial services sector.
“Outsourcing in general is expected by many companies and observers to
bring positive benefits to the UK in the form of increased efficiency and
productivity. A recent survey by the Centre for Economic and Business Research
estimates that increased efficiencies through outsourcing may result in as much
as £16 billion to the economy over the next five years.” - Anna Fifield,
“Outsourcing: Set to Give Economy £16bn Boost”’, Financial Times, 17 January
The main causes for the rise of BPO industry in India have been the availability
of a large number of trained manpower. This is due to India’s large population
and emphasis that education carries in Indian middle class families.
The craze to get their children properly educated is the most important agenda
in the minds of any parent. This in conjucion with a fairly capable educational
system has created a huge pool of talent that cannot be absorbed by
The surplus in the labor market provides for perfect employees for the BPO
sector. Another pool is also present which is not trained but can be easily trained
employing minimal costs . Also due to abundance of labor the Outsourcing
companies hire people at cheap prices .The per capita income of an Indian is
Rs 12,414 while the per capita income of an American is $37,800. This gives a
definite cost advantage to Companies that go in for Outsourcing. Also in ITES the
presence of a large number of English speaking youth gives a huge advantages
for the company that outsources. India, with plenty of university-educated,
English-speaking technical experts, has become a powerhouse in the IT sector.
Huge chunk of India’s population is younger than 25 years of age and many of
these members of the India’s youth like to live a life with full freedom and
independence . In their zest they do not mind working for BPO Industry even if
the amount of value addition is not perceived to be very high. The needs of the
BPO industry and these youth are complimentary and This has immensely
contributed to high popularity of BPO jobs in India among youth and also help
India achieve the place it has currently in BPO .
Today , some 40% of companies in the Fortune 500 source software services
from Indian companies. With the success of the Indian IT revolution, the trend
has extended to other business processing services, from remote bill processing
to human resources, and recently, call-centres.
The main areas of outsourcing in India are IT Enabled Services (ITES) and
Business Process Outsourcing (BPO) with BPOs being the fastest growing
segment, at about 50% growth per year. The outsourcing of business processes
and call centre operations, as well as some value added analysis like equity
research, is viewed as a positive trend in India, one that brings in jobs and
opportunities to a country that is home to one-sixth of the world’s population. It is
also seen as fair reward for the years of investment India has made in education
to deliver high levels of English language fluency and technical and managerial
Gradually, higher value-added services have also begun to take hold in India,
particularly in the financial services industry, including portfolio analysis, risk
management, claims processing, content development and new product design.
With the increasing education levels around the world, BPO is no longer confined
to routine manufacturing jobs or boiler-room telemarketing centres. Today’s
outsourcing involves complex work that requires extensive preparation and
training. For example, Indian radiologists now analyze computed tomography
(CT) scans and chest X-rays for American patients out of an office park in
Bangalore. In the United States, radiologists are among the highest paid medical
specialists, often earning more than $300,000 per year to evaluate magnetic
resonance imaging (MRI), CT scans, and X-rays. In Bangalore, radiologists work
for less than half that. Not far from the radiology lab in Bangalore, Ernst & Young
has 200 accountants processing U.S. tax returns. Starting pay for an American
accountant ranges from $40,000 to $50,000, whereas in Bangalore accountants
are paid less than half that amount.
Indians are known to be more to respect tradition and their elders, follow strict
family norms, have a deeply inculcated sense of value for education and exhibit a
relatively egoless state (within a family, or team), meeting commitments,
believing in duty, and not worrying about the goal or the endgame too much.
Software organizations and customer service agents fortunately and surprisingly
seem to emulate the Indian family values, rather than the society at large. The
same, unfortunately, cannot be said of the Indian manufacturing sectors or other
parts of the economy in general, though things are changing there, especially in
the automotive sector
INEQUALITIES IN THE INDIAN SOCIETY.
Another reason for the rise of BPO in developing countries like India was the
monetary inequalities amongst various sections of society. So in order to lessen
this gap youth from lower middle class started taking up jobs to either support
their families or become independent of their families. Also there was a problem
of disguised employment which the BPO industry seem to solve at least in the
short run. This factor again was instrumental in the popularity
Driving Factors behind the BPO Boom:
The United States still dominates the world in the quality of its higher
education, but the rest of the world is catching up quickly. As more and more
Ph.D.-qualified faculty return to their home countries with their degrees from
Harvard, MIT, Stanford, and other prestigious schools, they are helping to
transform higher education worldwide.
At the K–12 level, it has long been noted that the United States lags
behind other countries, especially in technical areas such as math and science
as measured by standardized test scores. The gap between the United States
and many foreign nations has increased over time in technical education, which
has now also translated into fewer U.S. students seeking college degrees in
The following exhibit compares the relative numbers of U.S. and Asian
students pursuing science and engineering disciplines at the collegiate level. As
illustrated in the exhibit, Asian students are increasing their engineering expertise
in a world that increasingly appreciates and utilizes their new abilities.
Broadband refers to the growing pipeline capacity of the Internet, allowing
larger chunks of information to flow with fewer congestion issues. Broadband is
the term used to refer to Internet connectivity speeds that are in the range of 2
megabits/second (2 million bits/second). With broadband, workers in different
countries can share data, while consumers can surf the Web for the latest
Changing Labour Pattern:
Regular and permanent jobs with respectable compensation, including
social security and terminal benefits are beginning to look as thing of the past.
Short term and third party jobs in instalments are emerging as a new
phenomenon. Flexi staffing, it appears, is a strategic necessity for survival in a
globalised market setting. Indian IT firms were the first to take advantage to work
around the restrictive labour laws and optimise productivity. Temporary staff
helps in flexibility of deploying manpower and concentrating on executive
handling for core functions. The non-core job staffs are being outsourced through
different agencies. It is estimated that about 100 thousand temporary job were
generated in 2003-04 accounting for an industry turnover of Rs. 850 crores.
In India it is just a beginning. Such jobs may not fall into the category of
traditionally ‘decent job’ but employers gain as a result of flexibility without any
hassle, as well as reduced wage bill. For the workers, however, it offers
immediate job opportunity for freshers. Temporary jobs provide opportunity to
update ones skill and acquire more market friendly experiences in a fast
changing job market scene. Unions hate this phenomenon, but can do hardly
much in view of their own falling clout. Even the government is more anxious to
promote employment in a labour surplus economy rather than continue to remain
a promoter of model employment which is secure and provides better
compensations and benefits. Interestingly, industrial disputes which have largely
been confined to the organised sector have taken a new turn. More man-days
are being lost lately due to lockout rather than strike. This reflects the changed
power equation within the job market. Neutral and investment friendly
government labour policy is encouraging this trend.
With growing trends of an ageing population in Europe, Japan and UK and
to some extent in the USA, the demand for younger workforce from labour
surplus countries will increase. India with its more than 52% of the workforce in
the younger age group is likely to service the international labour market
increasingly. Engineers, Doctors, Nurses and Teachers of Indian origin are in
Another important factor: returning Indians, either due to the pull of
domestic investment opportunities or due to the push of shrinking job
opportunities, particularly after dot com bust, are likely to substantially improve
the qualitative performances of Indian economic activity wherever they decide to
locate and work either as entrepreneurs or as employees.
This linkage is also going to be a major facilitator in investment as well as
market access for product as well as services. An added advantage is the
possibility of a smoother joint venture, strategic alliances and partnership for
According to a McKinsey report, the business process outsourcing industry is set
to grow up to $1.2 billion from the current $0.3 billion, in the next two years.
However, with the services industry growing at 10-11 per cent with emerging
careers in the hotel, airline and banking industries, Indian BPOs are likely to face
a manpower shortage, especially at the mid-management level by 2008.
Before coming to the conclusion on India's BPO industry, provided the ideal
forum for industry representatives to discuss, debate and acknowledge the
teething problems of the Indian BPO industry:
• The model used to built the BPO industries was cost effectiveness,
initially. In recent times, with wages continuing to rise at 10-15 per cent
coupled with shortage of skilled manpower, the model no longer holds
• The hidden cost of sub-standard infrastructure is the one of the most
serious threats for BPO companies in India.
• Creating a secure environment becomes paramount, as business
processes are distributed across the globe through diverse complex and
increasingly mobile networks and fast growing industries, and imperatives.
• Largely untapped potential ability to apply technology to business
processes is the India's true competitive advantage as of today.
• The BPO industry is capital intensive and requires huge additional capital
infusion to fuel its growth.
• Last and most critical is the education system input to this sector. Scarcity
of the appropriate skills gained through the education system, which is low
on quality and relevance. This is a major limiting factor for the long-term
growth of the industry.
In lieu of the current limitations, and deliberations from the conference can be
summed up with :
1. New face for Indian BPO.
India should no longer be presented as a cost-effective destination alone, but
one that is driven by skills and quality. The industry is however, still in its nascent
stages of consolidation and needs to Re-brand itself in terms of value addition,
competition and innovation.
2. New wine in New bottle
Public and private investment in infrastructure with all concerned bodies adopting
a customised approach to meeting the needs of the BPO industry.
3. Information security Benchmarks.
Academia, Public and Private partnerships need to be developed in
strengthening the courts understanding of security issues. In addition, a robust
and effective mechanism needs to be implemented for information sharing
among industry, government and other interested parties. Timely dispensation of
justice, including concrete alternative dispute resolution mechanism is also an
imperative. Industry and the government must work together to make legally
viable standards of due diligence.
4. Latest Technology.
India's scientific and research establishments should be encouraged to devote
greater attention to the new class of technology that is emerging to enable
secure and increase efficiency of remotely delivered services. Private investment
should be encouraged in development and commercialisation of technology.
5. Governmental support.
Credit institutions need to develop customised norms for the BPO industry. The
availability of risk capital needs to be enhanced in early stage ventures.
Third party hosted infrastructure BPO companies should be eligible to favourable
tax treatment afforded to the infrastructure sector.
6. Sound and self sustained Education system.
Industry in association with management schools should develop BPO specific
graduate level programmes for mid-management and modify curriculum and the
quality of instruction in entry-level educational institutions.
Technical institutions should develop competency around the specialised
technology required for the BPO industry.
6. Express computer Magazine
7. Global Offshoring Outsourcing Summit (GOOS) 2005 presented by the Indo-
Chamber of Commerce.
8. NASCOM Reports 2002,2003,2004.
9. McKinsey Reports 2001,2002,2003.
The White Paper is based on the Direction Paper prepared by Dr. Anil Seth,
Padre Conceisao College of Engineering and the presentations made by industry
leaders at the seminar. We thank Prof. V.S. Sukhthankar, Goa Institute of
Management for compiling this document.
We would like to acknowledge all the speakers without whose contribution this
conference would not have been successful:
Mr. Srinath Batni, Director & Head APAC, Global Accounts, Infosys
Mr. Manoj Kunkalienkar, Executive Director, ICICI Infotech
Mr. Ravi Dighe, Sr. Vice President - Operations, Aptech Limited
Mr. Hemant Sukhthankar, CEO, M4II
Mr. Pradeep Phadke, Sr. Vice President & Centre Head, Global
Mr. S.P. Zindal, Executive Director, STPI
Dr. M. V. Pitke, Director, Axes Technologies
Mr. Sanjiv Nadkarni, General Manager – India Operations, NE
Mr. Sharad Saxena, Chief IT Manager, Konkan Railway Corporation
Ms. Jyoti Bacche, Sr. Architect, Aztec Software
Mr. Girish Nair, Vice President – HR, Aztec Software
Dr. V. V. Kamat, Reader, Department of Computer Science, Goa
Dr. Anupam Saraph, IT Advisor, Government of Goa