Business process outsourcing concept

Business Process Outsourcing
Concept
In recent years, the term Business Process Outsourcing or BPO has gained prominence and the
trend of outsourcing back office operations to centers in India and Philippines along with other
countries in Asia has taken center stage. Often, we come across projections that show a greater
growth in BPO with more western firms outsourcing to the Asian and other countries.
This module is intended to cover the BPO phenomenon in depth and provide the readers
with a clear understanding of the dynamics involved as far as this phenomenon is
concerned. The various articles in this module would help the readers form a perspective of how
the BPO sector works and the business drivers and imperatives behind the outsourcing
phenomenon.
First, why should any company in the west outsource its back office operations? There are
several reasons for this and the primary driver is the cost factor. Since wages in India and other
Asian countries are cheap in Dollar terms which mean that for the same amount of money that
the firms are paying their employees in the west, they can get a highly leveraged amount of work
when they outsource to India and other Asian countries.
Next, because of the fact that the time zones of the West and Asia complement each other to
ensure that work gets done in a 24/7 cycle. What we mean is that since the US and Asia are
separated by almost a half day time zone differential, whenever it is nighttime in the US, it is
daytime in Asia and vice versa meaning that the work can be done round the clock.
Third, the BPO employees in the India and Asian countries like Philippines are proficient in
English and with some training can be taught to talk in an American accent or a British Accent.
This means that the end users or the consumers in the US and Europe can feel comfortable
secure in the knowledge that they can make themselves understood as well as understand what
the person at the end of the line is saying. Finally, because of the way in which the BPO
phenomenon has developed over the years, many companies in India and other parts of Asia are
now better at the back office work than their American or European counterparts which means
that not only is the cost an important criterion, quality of service offered is also excellent.
Because of these factors, there are humungous benefits for American and European
countries to outsource their back office operations to companies in the East. This can take
the form of captive companies set up for this purpose or can be a turnkey outsourcing to a
vendor. We will explore these themes in greater detail in the succeeding articles. In conclusion, it
would be fair to say that the BPO phenomenon represents a turning of the tide as far as
perceptions about the East are concerned and it is to the credit of Indian and other Asian
countries that they have delivered stellar results to their outsourcing clients in the US and in
Europe.

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 Future of BPO in India
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 BPO and the Global Economy
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 What is Business Process Outsourcing ?
 Benefits of BPO
 Disadvantages of the BPO
 Effect of Global Financial Crisis on BPO
 Effect of Domestic Politics on BPO
 Hue and Cry over Outsourcing and BPO
 Effect of BPO on the Workforce
 Drivers of the BPO Phenomenon
 BPO & Transformation of Process Work
 Emerging Threats for Indian BPO Sector
 The New Trend: Insourcing IT Services
 Infosys Visa Fraud Case
 Reverse Outsourcing
 Standard Chartered and HSBC Scandals
 How Not to Put All Eggs in One Basket - De-Risking Strategies for Outsourcers
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5. The Future of BPO (Business Process Outsourcing) in India
The Future of BPO (Business Process
Outsourcing) in India

India has emerged as a hot destination for BPO work in recent years. The success is mainly
due to the fact that there is a ready availability of large numbers of resources fluent in
English and the diligent and hardworking efforts put in by the companies in India that do
BPO work. Further, the fact that Indians are well educated (by Asian standards) and that there is
a humungous body of resources who have graduated in commerce and technology has meant that
the BPO story took off in right earnest in India. Added to this is the fact that the demographics
favor India since a majority of its population is young and under 30. This is the so-called
demographic dividend wherein a country that is youthful reaps the fruits of having a labor force
which can be tapped into. All these reasons have conspired to bring about a revolution in the way
the Indian BPO sector has performed.
However, things are not all that hunky dory since many other countries in Asia seem to be
playing catch-up with Philippines emerging as a viable alternative to India. One of the reasons
for the completion is that the wage differential that India had over the West is eroding since the
industry is maturing and hence wages of the workforce are going up.
This means that other low cost rivals like the Philippines can tap into the advantage that India
hitherto had. Further, there is a certain level of saturation that has set in India with the law of
diminishing returns coming into play. These factors mean that India has to watch out for
competition from other countries. Of course, there are certain steps that can be taken to arrest the
decline and ward off the competition.
For instance, Indian BPO companies can branch out into Tier II and Tier III cities so that their
wages are competitive and that a skilled workforce that exists beyond the cities can be tapped
into. Moreover, the costs can be kept down because of the fact that these cities have a lower cost
of living and doing business than the Tier I cities. The most important step is that Indian BPO
companies can move up the “value chain” which means that they can migrate to higher end
knowledge work or KPO which is more cerebral and pays well. The point here is that it is time
for the Indian BPO industry to take the phenomenon to another level and this is precisely the
reason for many Indian BPO’s to take up KPO work as well as opening centers in smaller cities.
Finally, the Indian BPO industry has to realize that once the industry matures, profit
margins and return on investment stagnate and reach a plateau. It is for this reason that the
time is ripe for the Indian BPO sector to innovate and move up the curve. With other nations
snapping at its heels, the Indian BPO sector cannot afford to take it easy nor be complacent.
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5. Challenges Faced by BPO Firms in India
Challenges Faced by BPO Firms in
India
It is a fact that India has been at the forefront of the BPO/Services revolution and its firms have
garnered a huge chunk of the BPO/Services market. However, the firms that operate in the BPO
space in India face their own challenges as far as the conduct of business is concerned. For
instance, one of the foremost challenges that are faced by the BPO firms in India is the instability
and the chaotic way in which infrastructure and logistics management is concerned.
The frequent power outages, poor traffic management, political instability in the form of
strikes and shutdowns all take a toll on the operations of the BPO firms. Because the sector
needs to work 24/7, it cannot afford any disruption to its service. Hence, the move by the BPO
firms to lobby with the government on granting them the essential services tag so that they are
not subject to the instability and can carry on their operations.

The next set of challenges deal with the increasing un-employability of the workforce. In
previous articles we discussed how the ready availability of highly skilled resources is an
advantage that India has. However, it is also the case that a majority of this resource pool does
not pass the criteria for employment. The point here is that it is not enough to have a million
graduates graduating each year. Rather, the real test should be as to how many of them actually
qualify for employment. Towards this end, the BPO sector is making efforts by roping in
management institutes and technology colleges to partner with the apex IT/ITES body,
NASSCOM to improve the skill set of the graduates and make them better suited for the kind of
work that the BPO firms do.
Third, the way in which the BPO sector has evolved in India is mainly by doing low end work
which is rapidly being threatened by new entrants like Philippines and other countries. This
means that either the BPO firms cut their costs of resources or migrate to higher end work like
the KPO or Knowledge Process Outsourcing. Again, the task here is cut out for the BPO sector
and for NASSCOM i.e. to market the Indian BPO sector as being worthy of doing high end work
and capable of innovation and other higher value chain activities. In short, these are some of the
challenges that the BPO sector in India faces as far as its operations are concerned.
On the external front, there has been a hue and cry over outsourcing to India in the ongoing
presidential campaign in the United States. This means that the BPO sector in India has to be
extra vigilant to rebut the charges made by the politicians in the US and the UK. The point here
is that the BPO sector must not become a scapegoat in times when the US and the UK are in
recession and so there needs to be aggressive lobbying taken up externally to counter these
perceptions. In conclusion, as in life and so in business, nothing is permanent and hence the BPO
sector in India should not be complacent and let events and circumstances pass them by.
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5. Effect of BPO on the Economy of United States
Effect of BPO on the Economy of
United States
In previous articles, we looked at how the BPO phenomenon has played itself out in India and
other Asian countries that have derived humungous benefits to their economies. In this article,
we look at the other side of the coin i.e. the benefits that accrue to the economies of the Western
countries as they outsource their business operations and back office work. First, BPO results in
significant cost savings to the companies that outsource their back office work. This is because
of the fact that the wage differential between the West and the East makes it possible to cut costs
by as much as half when the same work can be done in India and other Asian countries for a
fraction of what it costs in the United States or Europe.
Next, BPO allows the companies in the west to concentrate on higher end value adding
work and makes them focus on their core competencies. The point here is that by outsourcing
their routine and mundane work, the companies in the west have more time and resources to
focus on doing work that is higher up the value chain and hence add substantial value to their
businesses.
This fact has been highlighted by many commentators in the West who urge the business leaders
and politicians in the US and Europe to look at this aspect before they raise a hue and cry over
outsourcing. Given the fact that most of the work that is outsourced brings cost advantage
coupled with a focus on core competencies because of the less overheads, this is a double
whammy benefit that few companies in the US and Europe can ignore.

Third, BPO as a phenomenon has resulted in productivity leaps and better ways of doing
the back office work by firms in India and other countries of Asia. This is because of the fact
that these firms have perfected the art and science of back office work and are now moving up
the productivity curve which means that companies that outsource can be assured of quality with
cost. Indeed, this trend of delivering high quality work at half the cost has meant that companies
in the West are embracing BPO wholeheartedly. This explains the surge in the number of
companies that have jumped on the BPO bandwagon.
Finally, in these recessionary times, any cost savings is welcome and BPO offers the recession
hit companies in the West a foolproof way of increasing their profitability and margins.
Companies can either grow by boosting their revenues or cutting costs or both. During times of
economic downturn, it is often the case that companies look to cut costs as increasing revenues
becomes difficult due to the gloomy economic conditions. Hence, the natural and obvious choice
for such an endeavor would be to outsource their back office work to companies in India and
other Asian countries.
In conclusion, BPO represents a win-win situation for the companies that outsource their work
and for the firms that are vendors and partners. Hence, it is the case that the BPO phenomenon
has resulted in net gains for both parties in the exchange.
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5. BPO and the Global Economy - The Powershift to the East
BPO and the Global Economy - The
Powershift to the East
In recent years, the BPO phenomenon has accompanied the increasing globalization of the world
economy and has spawned a shift in the way the United States and Europe view the developing
countries of the East. For instance, the increasing movement of companies wishing to
outsource their back office work to India and Philippines has meant that the people in the
West have a favorable impression of the work ethic and professionalism of the Asian
countries.
Of course, with the first wave of outsourcing in the IT industry and the manufacturing companies
to India and China respectively had done their bit to alter the perceptions of the West towards the
East. What has added further emphasis to the way in which the Westerners perceive the East, has
been through the BPO phenomenon which has demolished several stereotypes associated with
Asian countries.
The other aspect of the BPO phenomenon is that increasingly countries in the Asian hemisphere
are moving up the value chain as far as performing work related to back office operations are
concerned. This has resulted in greater accent on doing high end work and given the number of
patents being filed on behalf of technology and KPO companies has meant that the East is no
longer the laggard that it was and instead, it competes on even keel with the West. It is indeed
the case that even in earlier decades; research and development were being done from South
Korea and Singapore (to name a couple of countries). However, India and China were considered
to be forever beset by increasing population and lack of resources. It is to the credit of these two
countries that they are being talked about in serious terms by western companies.
The third aspect of the BPO phenomenon is the increasing confidence with which the Indian and
other Asian countries have succeeded in nurturing a class of professionals who are confident and
feel empowered enough to think big. Indeed, the youthful composition of the workforce is what
India and China have as their advantage. In the previous paragraph, we mentioned how India and
China were burdened with growing populations in earlier decades. Ironically, it is these very

drawbacks that have now turned the tide in favor of these countries and this is indeed a
spectacular achievement.
Finally, the BPO phenomenon has also resulted in India adding substantial amount of Dollars to
its foreign reserves which is indeed another feather in its cap. Given the recent slide in the value
of Rupee, it would be prudent to say that the BPO companies would be the winners because it
increases their competitiveness and at the same time translates into higher rupee earnings. All
these developments indicate that the power is shifting to the East as far as competitiveness and
efficiency are concerned. It is no longer the case that the East is a land of mystics and now it is
the case that these countries are powerhouses of manufacturing and services.
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5. Benefits of BPO to the Target Countries
Benefits of BPO to the Target
Countries
In previous articles we have seen how the BPO phenomenon benefits the Western countries (US,
Europe etc) by slashing the costs of the firms who outsource their back office work. In this
article, we look at how the BPO phenomenon is transforming the economies of the countries that
are the recipients of the outsourcing phenomenon. In other words, countries like India and other
Asian countries where the majority of the firms that do the outsourced work are located have
reaped the benefits of the BPO phenomenon to the maximum extent.
For starters, the influx of foreign exchange and primarily Dollars puts these countries at an
advantage since the US Dollar is the reserve currency or the currency in which the
economies of the world trade with each other. The point here is that by performing outsourced
work, these economies stand to gain in terms of Dollar reserves which put them at an advantage
over the countries that lack humungous Dollar reserves.
Next, the employment generated by the BPO sector absorbs the majority of the employable
workforce in these countries. In other words, the large numbers of jobs created by the BPO
companies act as a buffer against unemployment and at the same time provide the graduates in
these countries with a chance to move up the economic ladder. In fact, many studies have
pointed to this fact where hitherto economically underprivileged sections have benefited to a
large extent because of the earnings that they have made by working in the BPO sector. Indeed,
for third world countries, the BPO phenomenon is a godsend for lifting people out of their
economic backwardness and propelling them towards middle class lifestyles.
The third aspect relates to the moving up of the value chain for these economies that happens
once the base level work is done according to specifications. In other words, countries like India
and the Philippines that started with low level back office work are now into higher value adding
activities like KPO and Research and Development which means that pretty soon these
economies can compete with the economies of the West in R&D and Innovation. This is
definitely a huge plus for the purveyors of the outsourced work since moving up the value chain
brings a longer term competitive advantage that is denied to the countries still stuck in low end
work.

Finally, the BPO phenomenon has altered the perceptions of the Western countries about the
Asian countries in a positive manner. Gone are the days when the West used to look askance at
the Asian countries and dismiss them as being backward and unfit for value adding work. Hence,
the BPO phenomenon has proved that the Asian countries can indeed be talked about as being in
the same league as the West as far as doing cutting edge work is concerned.
In conclusion, the BPO phenomenon is indeed a favorable development for the Asian countries
in more ways than one. It remains to be seen whether these countries can sustain the benefits that
have accrued to them because of this.
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5. Disadvantages of the BPO Phenomenon
Disadvantages of the BPO
Phenomenon
In previous articles, we looked at the humungous benefits that the BPO phenomenon brings to
the economies of the host and the target nations. Mainly, we focused on how cost savings for the
companies outsourcing their back office work and increased revenues for the companies doing
the outsourced work have been actualized leading to a win-win situation for both parties.
However, the BPO story is not all milk and honey and as we shall see there are many obvious
and hidden disadvantages that have affected both the parties to the exchange. For instance, in the
countries like India and Philippines that do a bulk of the outsourced work, the BPO sector
is known for rising incidence of lifestyle and work related illnesses mainly due to the fact
that the employees in the BPO sector work at nights because of the time zone differential.
Ironically, what is the USP or the Unique Selling Proposition for the BPO sector that they can
provide 24/7 work to their clients in the US and Europe has turned into a nightmare (no pun
intended) for the employees.
Next, the fact that many of the companies are yet to move into higher value adding activities has
meant that their energies are wasted on doing repetitive and low end work which drains away the
advantage given the fact that any business model based on cost alone cannot be sustained over
the longer term. The point here is that the BPO sector unless and until it manages to move up the
value chain will always be under threat from newer lower cost rivals. The third disadvantage is
that many customers in the West are increasingly being suspicious of Asians handling their
complaints and these negative feedbacks are not restricted to racial and prejudicial undertones
but also cover legitimate concerns about security and communicative aspects as well. The point
here is that many customers in the West are increasingly feeling uneasy given the spate of
scandals that involved leaking of customer data along with misinterpretation and
misunderstanding between the customers and the back office personnel.
Finally, the BPO phenomenon has created an illusion of prosperity and higher standard of
living for the employees and this means that countries like India have to contend with a
large workforce that ape the West without having the infrastructure or the amenities that
the West enjoys. This aspect brings to the fore the fact that blindly aspiring to Western lifestyles
without going through the stages of development that the West went through means that one
cannot just leapfrog into advanced economy status without doing the basics right. This has
especially manifested itself in another aspect that has to do with the difference in compensation
between the BPO employees and the other sections of the economy leading to social tensions etc.
These are some of the disadvantages that the BPO phenomenon has brought to the fore in both
the economies of the West and in Asia.

In conclusion, as with any sector, the industry leaders in the BPO sector have to ensure that there
are more benefits than drawbacks for the sector to flourish and benefit the economy as a whole
and at the same time provide benefits to their clients.
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5. Effect of the Global Financial Crisis on the BPO Sector

Effect of the Global Financial Crisis on
the BPO Sector
Like other sectors in the corporate world, the BPO sector has been affected by the ongoing
global economic crisis. For instance, there has been a twin movement that has manifested
itself in the way the BPO sector has been impacted. On one hand, many companies in the
West (US and Europe) have trimmed their budgets and have reduced their outsourcing
exposure significantly. On the other hand, there has been an uptick in the way in which some
companies in the West have increased the pace of outsourcing. Though these twin imperatives
might seem contradictory and conflicting, there are reasons for this kind of behavior.
Many companies that have suffered because of the ongoing global economic crisis and have not
received assistance from the government have decided to curtail the outsourcing budgets whereas
others who have been bailed out by the government have decided to increase outsourcing as a
means of cutting costs.
The point here is that the companies in the West that have preferred to lay off their employees at
home and instead ship jobs overseas are the ones that have increased business for the BPO
sector. And those companies that have preferred to retain their domestic workforce are the ones
that have increased the pace of outsourcing. Apart from this, the other factor that has been
weighing on the minds of the CEO’s in the West is the effect of domestic policies on the
outsourcing phenomenon. In later articles, we will discuss this in depth. Suffice here to say that
in recessionary times, there is usually a hue and cry over outsourcing in the home countries and
this has led to greater circumspection by the companies in the West. Further, there is a moral
obligation for the companies in the West to retain their domestic workforce when the going gets
tough and hence, many companies have preferred to not ship more jobs overseas.
However, many companies have also seen the advantages of outsourcing more in recessionary
times because of the humungous cost savings that outsourcing brings to them. Hence, they have
increased the pace of outsourcing to improve their bottom lines. This is a brief explanation for
the complex phenomenon that is outsourcing especially the topic of the effect of the recession on
outsourcing and its effect on the BPO sector. What has complicated the matter further is the fact
that Indian BPO companies have significantly reduced costs over the last two years to make the
value proposition that they offer better for their clients in the West. Hence, it has become
attractive to ship jobs overseas rather than keep them in the home countries. Apart from these
factors, the fact that there is a race to the bottom by the companies in Asian countries means that
it is tempting for the CEO’s in the Western companies to get more work done offshore.
In conclusion, the recession has had mixed effects on the BPO sector and going forward, we can
expect to see greater turbulence especially when one considers the fact that this is a presidential
election year in the US which is generally associated with greater focus on outsourcing.

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5. Effect of Domestic Politics on Business Process Outsourcing (BPO)
Effect of Domestic Politics on Business
Process Outsourcing (BPO)
In previous articles, we talked about how the ongoing global economic crisis coupled with
domestic pressures affect the outsourcing of back office operations. In this article, we look at a

hot topic and a burning issue in the West i.e. the hue and cry over outsourcing and
shipping jobs overseas especially at a time when the domestic workforce is finding it hard
to get gainful employment.
The basic issue at stake is the concern of the trade unions and workers in the US and Europe at
what they perceive is an unfair shipping of jobs overseas when they are suffering. The argument
goes that when the domestic workforce is unemployed, how the politicians can let business
leaders’ ship jobs overseas to India. This is the so-called protectionist argument which states that
outsourcing leaves the economy of the home country in a bad shape. Countering this argument is
the pro globalizers who argue that outsourcing results in cost savings and other benefits like
focus on higher value adding work.
The debate is essentially framed as between those who want the jobs to be kept in the US and
Europe compared to those who see outsourcing as a necessary evolution for any economy to
move up the curve. The point here is that high minded arguments like the latter are hard to justify
in recessionary times when the workers in the domestic sector are left without jobs and no hope
of finding new ones. This issue which is always in the headlines thanks to newspersons like Lou
Dobbs resonates in a presidential election year (like this year - 2012) when tempers run high and
the outcry over outsourcing grows. As can be seen from the recent happenings in the US,
President Obama is pushing for lesser outsourcing in some sectors and more outsourcing in other
sectors. This twin pronged strategy is to ensure that American competitiveness stays intact and
only those jobs that are deemed to be redundant in the US ought to be shipped overseas.
Contrast this position with that of the other presidential hopefuls like Mitt Romney who favors a
blanket form of outsourcing where the CEO’s and the shareholders benefit but the ordinary
worker suffers. In recent weeks, this has become the rallying cry for the Obama campaign team
and this is a direct result of the compulsions of domestic politics which have a large say in
determining the extent of outsourcing that can be done. Finally, the outsourcing issue is also a
very sensitive one as livelihoods of workers are at stake and hence any politician or media
commentator ought to treat the issue in a delicate manner. The point here is that apart from the
posturing and rhetoric, an objective and a hardnosed analysis of the issue ought to be done so
that partisan bickering and one-upmanship do not derail the debate.
In conclusion, it is indeed the case that American CEO’s and business leaders would find it
increasingly hard to justify their pro outsourcing stance especially when the US economy is
tanking and there are fewer jobs to go by.
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5. The Hue and Cry over Outsourcing and BPO: Is it Justified ?
The Hue and Cry over Outsourcing
and BPO: Is it Justified ?
In previous articles, we looked at the compulsions of domestic politics in the US and Europe on
the outsourcing and BPO debate. We have also looked at how the current recession is renewing
calls for jobs being retained in the US as opposed to jobs being shipped overseas. This article
looks at the outcry over outsourcing and debates the issue from different perspectives to
arrive at an understanding of the dynamics driving the protests.
For starters, many commentators in the US actively push for more outsourcing because of the
humungous cost savings that corporations get when they outsource which can then be deployed
for more productive and higher value adding work. For instance, the noted economist Jagdish

Bhagwati has shown in his research that outsourcing is a win-win situation for both parties to the
exchange and in fact, the US stands to gain rather than lose from the transaction.
The crux of the argument is that outsourcing creates opportunities for corporations and workers
to move up the curve and these results in net job creation rather than job losses. However, the
vociferous protests from the other side point to the dismal rate of job creation and the loss of
American competitiveness. They point to the fact that outsourcing results in gains for CEO’s and
elites but not for the average worker. When this issue is framed in the backdrop of the recession
where jobs are hard to come by, it is hard for any politician to justify the outsourcing of work.
The prominent commentators on this side are Lou Dobbs and more recently President Obama
himself. Their contention is that instead of shipping American jobs overseas, the US corporations
can invest in creating more opportunities for win-win exchange abroad. The point here is that the
creation of opportunities and the subsequent gains or profits should give the CEO’s and the
elites’ reason to not take away jobs from Americans.
This is the same agenda that drove President Obama in his visit to India to push for investment
by corporations like GE to invest in India and in turn get the investment from India so that jobs
are created at both places. What these two sides of the debate reflect is a desire to create and
keep jobs in the respective countries as opposed to outsourcing being a zero sum game. What the
two sides do not seem to agree on is the exact mechanism by which this exchange has to be
played out. This is the thorny aspect of the debate and something which requires intellectual and
moral leadership to resolve.
Globalization and outsourcing need not be zero sum games but instead can be a win-win
situation for both parties. This is the base level to which everyone must aspire without falling
prey to rhetoric and posturing. In conclusion, the rights of the workers are paramount whether
they are in the US or in Asia and hence, no politician or business leader can ignore this
fundamental reality.
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5. Effect of Business Process Outsourcing (BPO) on the Workforce
Effect of Business Process
Outsourcing (BPO) on the Workforce
The previous articles have discussed the impact that the BPO phenomenon has had on the
economies of the home and the target countries. This was essentially a macro level perspective
about how the BPO sector has impacted these countries. In this article, we drill down and look at
the effect that the BPO sector has had on the lifestyles of the workforce and the effect that
working in such an industry has had on their professional lives.
First, with the advent of the BPO sector in countries in Asia, numerous young men and
women were exposedto the high life with fat paychecks and humungous perks that
included the best of what was available. Naturally, this has led to the creation of a large section
of the workforce which is addicted to the western way of living and hence incongruous with the
lifestyles of the average worker in these countries.
This has led to resentment among those who are left out of the global economy and in countries
like India; this resentment clearly shows overtly many times.
As much as the industry captains have advised the BPO employees not to indulge in conspicuous
consumption, the very fact that they work in swanky offices and live like the westerners do has
evoked lot of ill will between this sector and the rest of the populace who either because they
lack the skills or because they were not adroit to take advantage of the opportunities feel left out.

The other aspect that has to be mentioned here is the fact that typically the BPO sector works
during the night in countries like India and Philippines because of the time zone differential
between these countries and the US. This has led to health issues and problems arising out of
disorderly sleeping and eating habits. Indeed, one of the many concerns that have been expressed
by the BPO workforce is that they must be rotated between the nighttime working hours and the
daytime working hours if they are to remain fit and healthy. In fact, many BPO’s take the help of
qualified medical personnel to assist their employees in striking a healthy work life balance and
to see that they do not burn out quickly.
Turning to the impact that the BPO sectorhas had professionally, the workforce in these
countries is very much professional and tuned into the working style of the west. Compared
to the disadvantages that we have discussed above, this is one major plus that working in the
BPO sector has bestowed on the workforce. The point here is that the skill addition and the value
adding work has made these employees confident and innovative and ready to take up challenges
of world class work.
In conclusion, the BPO sector has had a positive and negative impact on the workforce and it is
the job of the industry leaders to ensure that the positives outnumber the negatives and see it to
that there is a healthy balance between work and personal lives for the employees.
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3. Operations
5. The Drivers of the BPO Phenomenon: Globalization, Economics and Geopolitics
The Drivers of the BPO Phenomenon:
Globalization, Economics and
Geopolitics
The main drivers of the BPO phenomenon are globalization, economics and geopolitics. To
elucidate, ever since the global economy started getting more integrated and interconnected,
there has been a concomitant movement towards opening up of the economies of the developing
countries to greater interaction with the west. This “flattening of the world economy” has meant
that the East was no longer ensconced in protectionist walls but threw open the doors of its
economies to companies from the west.
Any developing country that had invested in infrastructure and education could reap the
advantages of the opening up of the global economy. This was what happened in the case of the
BPO sector where the presence of a large pool of English speaking graduates along with
availability of broadband brought on by the huge investments made in the Telecom and Software
sector during the dotcom boom were leveraged by companies to communicate and plug into the
economies of the west.
The second driver of the BPO phenomenon is the economic aspect where the efficiencies
brought about due to the economies of scale and the theory of comparative advantage which
stated that countries benefit by exporting goods and services when they are cheaper to be made
in the home country and benefit by importing goods and services from countries where they are
cheap. This mutually beneficial trade between the west and east gave rise to the emergence of the
software and the BPO sectors that capitalized on the wage differential and the advantage of low
cost production to successfully harness the power of technology and communication.
The third driver of the BPO phenomenon is the geopolitical aspect where the countries in the
West encouraged greater interaction and cooperation with the countries in the East as means of
facilitating world trade and increasing globalization. The point here is that it made economic and
political sense apart from greater international cooperation leading to gains to all countries to

encourage the technology and BPO sectors. Further, the three drivers that we have discussed are
intertwined and interlinked where each feeds on the other leading to greater synergies between
them. Indeed, they have created conditions for the emergence of booming BPO sectors in Asia
thanks to this “triple convergence”.
Finally, the BPO phenomenon has also been driven by demographics as the populations in
the West age and at the same time, the populations in the East are youthful leading to a
comparative advantage in tapping the huge pool of skilled workers in countries like India. Hence,
though the ongoing global economic recession has undermined some of the gains, the BPO
sector is still thriving because of the confluence of these factors.
In conclusion, while one cannot prognosticate as to the future of the BPO sector a decade from
now, for the time being the economies of the west and the east are conjoined and this is indeed a
positive development from the perspective of the drivers of the sector as discussed above.
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3. Operations
5. BPO and the Transformation of Process Work
BPO and the Transformation of
Process Work
In previous articles in this module, we have discussed how the BPO sector has evolved and some
future directions for BPO companies in Asia. This article looks at a little known aspect of the
BPO phenomenon i.e. the fact that the very nature of the process work has been
transformed because of the emergence of the BPO sector. The point here is that until the
process outsourcing began in a large way, it was considered something that was not done by
graduates from reputed institutions in the West. For instance, call centers and routine processing
of claims and other procedural work was left to those with the minimum required education and
was considered unfit for those with degrees. However, all this changed with companies in India
and other parts of Asia taking to the BPO sector in major way.
This has resulted in many graduates from prominent business schools and commerce colleges
entering the BPO sector in India and Philippines which meant that the work was considered a
worthy career to pursue. This has resulted in the nature of the work getting transformed which
has had spin-offs in the way the process outsourcing industry has contributed to quality
excellence.
For instance, some studies have proved that the adoption of quality frameworks like Six Sigma,
TQM etc have meant that companies in India are able to achieve better results for reduced
operational cost. This has resulted in humungous gains for the Western companies as well as
introducing an element of professionalism to the way the work is done.
Indeed, it can be said that what is considered to be a low level profession in the US and
Europe is considered to be a glamorous career in India and Philippines and the choice of
millions of young professionals. As noted above, the transformation of the nature of the process
work has also resulted in India aspiring to move up the curve and consider KPO or Knowledge
Work that is cerebral and intellectual since the base steps of the ladder have already been
conquered. The point here is that high end knowledge work leads to greater value adding
activities and hence, the emphasis on this kind of work means that companies in Asia can move
up the value chain. The availability of a large pool of skilled workers in the post graduate
streams has meant that companies in India can tap into this readily available workforce to do

high end work. This is one reason why companies in India are preferred for BPO work rather
than in other countries.
Finally, the BPO sectormight be blamed for night shifts and excessive reliance on
American accents as a route to success. However, given the points that have been discussed
above, it is by no means the only way to define the BPO sector and the positives associated with
the sector far outweigh the negatives. Hence, it is clear that the next phase of innovation is
around the corner and it is hoped that Indian companies seize the opportunity like they did with
earlier phases of innovation.
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5. Emerging Threats to the Indian BPO Sector
Emerging Threats to the Indian BPO
Sector
The previous articles in this module have touched upon the emerging threats to the Indian BPO
sector in brief. This article looks at the issue in detail by considering hot emerging destinations
like South East Asia and Latin America.
The first aspect here is the emergence of countries like the Philippines as an alternative to India.
This has been helped by the fact that the Filipinos have accents similar to the Americans and
hence, the problem of verbal communication, which is the case with India, is surmounted in
the Philippines.
Indeed, recent studies have shown that the Indian BPO sector has lost nearly $10 Billion in
potential revenues in the voice segment because of the inherent inability of the Indians to
understand the American accents fully. Despite adequate training, the fact remains that Indians
are unable to change their accents fully to cope with the ever-increasing demands from the
Americans.
The next aspect is that while the Indian BPO sector incurs costs on transport, travel and
other benefits, the Philippine BPO sector does not have to arrange for these benefits to its
employees. This means that the Philippine BPO sector can do the same job for less.
Moreover, the salaries in India have been increasing exponentially which puts a further strain on
the ability of the Indian BPO sector to derive advantage from the wage differential. Apart from
this, the government in Philippines is giving several tax breaks whereas the Indian government is
withdrawing them. More than this, the employability of the labor pool in India is 10%, which
means that only 1 in 10 graduates, is employable in the Indian BPO sector. On the other hand,
the employability of the workforce in the Philippine Labor pool is around 30%.
The other region, which is emerging as a serious contender to India, is the Latin American
region, which because of its geographical proximity to the US is able to reap the benefits of
regulatory requirements in the US, which deem a certain portion of the work to be done in
countries that are close to the US. All these factors portend a trend where the Indian BPO sector

might have to innovate and stay ahead of the competition by moving into higher value adding
activities. Indeed, these threats are a wakeup call to the Indian BPO sector to get its act together.
Considering that the South East Asian region and the Latin American region are emerging as
frontrunners in the competition for alternatives, it is time for the Indian BPO sector to co-opt
these countries and partner with them instead of viewing them as rivals. Already some Indian
BPO companies have opened offices in Philippines, Vietnam, and Brazil and the future of the
Offshoring market is in these next frontiers of the breakout nations or the next economic
miracles.
In conclusion, the Offshoring market is going to be turbulent in the years to come, this
fragmentation would benefit the Western companies as more, and more countries vie for their
business.
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3. Operations
5. The New Trend: Insourcing IT Services
The New Trend: Insourcing IT Services
Insourcing is the opposite of outsourcing! Well, that sounds obvious, isn’t it? However, many
people do not know what it means. However, this is a trend that is hitting the market in
developing countries. Take India for instance; it is the largest exporter of software services in the
world. A few bellwether companies primarily ran India’s information technology business. Tata
Consultancy Services, Infosys, Wipro, Cognizant, etc, are a few of these stalwarts. However, the
recent quarters have been turbulent at these companies. A lot of clients have left these companies
and taken back their contracts. However, what is surprising is that the contracts have not been
outsourced to another third party company but rather it has been insourced. In this article, we
will understand the concept of insourcing and how it will affect the marketplace:
What is a Captive Center ?
A captive center is owned by the company itself. It is set up in offshore locations to ensure that
the tax and labor advantages are not missed. For instance, if Wal-Mart sets up its IT services
center in Bangalore (which it has already done) then it would be called a captive center. The
difference is that the work is not sent to a third party. Rather a legal entity is created and run by
the parent company itself. This entity if called the captive center.
The concept of Global Shared Services Organization has also emerged. This simply means that
the Wal-Mart office set up in India will provide services to all operations of Wal-Mart from
across the world! Hence, it is a bit like outsourcing. But instead of outsourcing to a third party,
companies have started outsourcing to themselves.
Maturing Markets
Companies like Colgate, Sony Pictures. Pfizer, Bayer, etc, have all opened their offices in India
in the past few months. In many cases, they have simply hired the talent that was anyways
working for them at their vendors. This move towards captive centers is because of the maturing
stage of the software export industry. Earlier, the costs were abysmally low. Also, companies
like Infosys and Wipro were the only ones that had access to the limited pool at low costs. The
volume of software services was also not significant enough for the companies to consider

opening their centers. The rising costs, falling quality of services, increasing reliance on
automation have all led to the beginning of this insourcing trend.
The Costs Involved
Insourcing software services can have substantial costs involved. IT service contracts are often
multi-million dollar contracts. Terminating them also leads to unexpected losses for the IT
vendor. They are left with infrastructure and workforce whom they will have to pay. As such,
these contracts have a heavy termination fee that involves millions of dollars. However, if the
contract is simply not renewed after its completion, there is no fee. It is for this reason that
clients wait for their 7 or 8-year contracts to end and then simply insource the work.
Knowledge Transfer
Insourcing is also a logistical nightmare. IT systems tend to be complex and have several
applications that have had several upgrades. Hence, no one really knows what exactly is going
on. This is true in the case of outsourced services. The knowledge about the systems lies with the
IT service vendor. Hence, knowledge transition is a significant insourcing challenge. Not only
does it take several days but also an incredibly big effort from both sides. The vendor and their
employees are disinterested in the process. This adds further to their woes.
Effect on Vendors
The insourcing trend is having a disastrous impact on vendors. Services have become more or
less commoditized. Hence, there is no unique selling point which enables them to sell at a
premium. Contracts are being awarded to the lowest bidder. As a result, there is a lot of pressure
on the profit margins. Hence, relying on volumes is the only thing that IT vendors can do to
maintain their profitability. However, with insourcing becoming fashionable, newer challenges
are arising in the marketplace and the volume of business is also shrinking.
Effect on Workforce
Workers have been the biggest beneficiaries of the insourcing trends. Third party corporations
have lower margins. Therefore, they cannot really pay their workers as well. Also, there is an
increasing drive to increase profitability
On the other hand, captive centers do not have such constraints. They can offer better job
security, higher pay, and more perquisites. The cr�me de la cr�me of information technology
workers are therefore flocking towards captive centers despite there being rumors that this
business model may be short lived. Captive centers have at least 50% less attrition than their
peers who undertake outsourcing projects.
Transition Time
Vendor contracts expire every 5 years. Quite often companies have to move their business to
another cheaper vendor. Each time the process moves to a different vendor, the learning curve
starts all over again. Insourcing offers stability. Hence, as time passes, the exponential gains in
learning add up. Each and every employee becomes an expert in their domain. This enables the

captive center to provide more seamless support to the business than any third party vendor
possibly could!
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5. The Infosys Visa Fraud Case and the Indian IT and BPO Sector

The Infosys Visa Fraud Case and the
Indian IT and BPO Sector
The recent case filed in the US about alleged visa fraud at the Indian IT bellwether, Infosys has
raised several questions for the Indian IT and BPO sector. However, the case was partially struck
down with the allegations being referred to a criminal probe instead of jury decision, the larger
issues about how to deal with the increasing anti-outsourcing rhetoric in the US as well as ensure
that Indian IT and BPO companies play by the rules are yet to be addressed.
The point here is that the Indian IT and BPO companies do send employees on short-term
business visas to the US for work, which is clearly against the rules. However, a point in their
favor is that unless the employee is going for a longer term like a year or more, it makes no sense
to send him or her on a work permit. Hence, the alleged visa fraud depends on the perspective
of the US government and the visa rules that pertain to them.
Since this is a presidential election year in the US where the anti-outsourcing rhetoric is going to
get shriller, Indian IT and BPO companies have to tread cautiously lest they get into the trap laid
out for them by the anti-outsourcing lobby. This means that right from pay and benefits to its
employees posted onsite to the way in which their visas are processed, Indian IT and BPO
companies have to ensure that they take legal opinion about everything that they do to not fall
afoul of the prevailing laws and procedures. The point here is that the Indian IT and BPO sector
is now progressing into the next stage of the capability maturity and hence, it cannot afford any
slipups in its journey. This is the bottom line for the Indian IT and BPO sector as it grapples with
the challenge of ensuring that its business stream remains intact and at the same time, it does not
violate any rules.
A possible solution to this imbroglio is to hire locals in the US and Europe to work at their
offices there instead of sending employees from India. This would also satiate the anti-
outsourcing lobby because they cannot claim that Indian IT and BPO companies are not creating
jobs in the US. Another way out would be open full-fledged subsidiaries in the US and Europe
and then staff them with locals as is being done in many transnational companies. Indeed, many
Indian IT and BPO companies have the necessary financial muscle to set up fully owned
subsidiaries in the US and Europe and this would be a great idea if handled properly. The reason
for this qualifier is that the Indian IT and BPO sector relies on the wage differential and hence,
opening foreign subsidiaries would defeat the purpose. However, instead of sending Indian
employees onsite, they can ensure that Americans do the work that is required and then come to
India to do the knowledge transfer. Though this solution might anger the Indian employees who
like to go for onsite trips for various reasons (including monetary, the thrill of visiting other
countries etc), the decision must be taken in the larger interests of the Indian IT and BPO sector.

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5. Reverse Outsourcing: The New Trend in Outsourcing
Reverse Outsourcing: The New Trend
in Outsourcing
Gone are the days when outsourcing meant a steady stream of jobs being shipped to India.
Now the trend is for Indian companies to create jobs in the West. This phenomenon which
is gathering pace in recent times is known as reverse outsourcing or the trend of Indian IT
and BPO companies opening offices in the US and Europe to employ locals there. This reverse

outsourcing is estimated to have created nearly 300,000 jobs in the US. This is good news for
Indian IT and BPO companies because they are battling the negative perceptions about
outsourcing which is seen as a phenomenon that takes away jobs instead of creating them.
Especially when one considers the fact that in a presidential election year, the anti-outsourcing
rhetoric reaches a fever pitch, so this trend is welcome for the positive news it generates about
Indian companies.
Moreover, other aspects like rising wages in India in the IT and BPO sector and the wild
fluctuations in the foreign exchange market make Indian companies to contend with expenses
that are mounting by the day.
The point here is that though the earnings of the Indian IT and BPO companies are in Dollars,
they need to pay their wages in Rupees and hence, they have to absorb the costs of rising wages.
So, it makes sense for the Indian companies to open offices and subsidiaries in low wage states
like Ohio in the US and in the Czech Republic in Europe where they can benefit from lower
costs and at the same time create jobs for locals. This double whammy benefit has indeed raised
the image of Indian companies and has given the CEO’s of Western companies something to
cheer about especially when they have to appear before committees and commissions made up of
politicians to defend outsourcing.
The other aspect here has to do with Western companies preferring to do business with
companies near shore or the emerging trend of near shoring. What this means is that many
Western companies want to have their back office operations outsourced to locations that are
nearer to their headquarters and hence, Indian companies are increasingly opening offices in
places like Mexico and Ireland to cater to European clients and US. Though Indian companies
have always had a significant proportion of their employees’ onsite, the trend of hiring locals
instead of sending Indian employees onsite is picking up.
Finally, the fact that Indian companies have to contend with competition from Philippines
and Vietnam has made them realize that they need to offer something more than the usual
to grab market share and hence, the latest innovation is reverse outsourcing. In conclusion,
while it is too early to state whether this trend is sustainable in the longer term and whether it can
ramp up considerably, the gains from this trend is that it has given an entirely new dimension to
the practice of outsourcing and has the potential to be a game changer.
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5. Lessons for the Indian BPO Sector from the Standard Chartered and HSBC Scandals
Lessons for the Indian BPO Sector
from the Standard Chartered and
HSBC Scandals
The recent regulatory scandals involving HSBC and Standard Chartered have brought
into focus the issue of how the outsourcing of business processes including oversight and
compliance has meant that standards have been relaxed.
Since both the scandals involved Indian back office operations looking the other way when they
should have raised red flags, there are some lessons for the BPO sector in India from these
experiences. For instance, outsourcing of back office operations including oversight and
compliance does not mean that the Indian companies need to blindly follow the Client’s
instructions and instead, they have to do their own due diligence with regards to processing of
the transactions as well as detect and report fraud as and when it happens. Both the Senate
Report on HSBC and the NY Financial Regulator on Standard Chartered have pointed to the way

in which the outsourcing of oversight and compliance to India has increased the risk for fraud in
these banks.
The point here is that the Indian BPO Sector like any other business believes that the consumer is
the king and in this case, the client is god. However, this should not extend to oversight and
compliance since regulatory issues are involved here and hence, the BPO sector has to draw the
line between pleasing the client and obeying rules and regulations. Since in both cases, it was
found that a majority of fraudulent transactions were passed over by the compliance teams based
in India, the focus is now on how the Indian BPO Sector tackles fraud and detects irregularities.
Indeed, this is a test case for the BPO sector and how it reacts and responds to this would
determine how mature it is.
In a way, the Indian BPO sector needed this wakeup call since there were many grey areas
that the sector was skirting till now. For instance, there were incidents where the client data
which was confidential was compromised and the way in which financial scams were being
carried out by some rogue employees. With this latest scandal, it is time for the Indian BPO
companies to realize that they are not only the partners of the Western companies but also are
custodians of financial and operational processes which means that they have a right to blow the
whistle on dubious business practices even at the risk of losing business. Given the option of
losing business against being stripped of the license, the obvious choice should be to raise the red
flag on suspicious transactions instead of being hauled up by regulators.
Finally, these are issues any maturing business sector has to grapple with and take corrective
steps before the whole sector is in jeopardy because of passing over the cracks. The point here is
that the BPO sector in India has to be responsible to its clients as well as regulators and hence,
must take steps to prevent the recurrence of such frauds and practices.
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5. How Not to Put All Eggs in One Basket - De-Risking Strategies for Outsourcers
How Not to Put All Eggs in One Basket
- De-Risking Strategies for
Outsourcers
What is De-Risking ?
Outsourcing is a process that involves selection of vendors who would then do the necessary
work for their clients regarding handling such work that the clients deem can be done by Third
Party Vendors.
What this means is that the clients first narrow down the list of outsourcers that can be entrusted
with the work, selecting a particular vendor after due diligence, and then closing the deal by
entering into contractual agreements with the vendors.
Due Diligence in this respect usually means evaluating the capabilities of the vendors to perform
the assigned work to the satisfaction of the outsourcers, estimating the risks that can arise from
outsourcing work, and then check if the returns on outsourcing outweigh the inherent risks to
such projects.
Thus, outsourcers usually perform adequate evaluation and estimation of risks as part of their
tendering and bidding processes.

In this context, the term de-risking is usually used to indicate the strategies employed by the
outsourcers to ensure that the risk from the outsourcing deal is spread over the course of
the project.
For instance, a particular outsourcer can determine that selecting a specific vendor to handle the
project all by themselves can be risky to the clients and hence, they select multiple vendors so
that they have backups and fallback options in case the project runs into trouble.
Indeed, the fact that outsourcers in the United States and Europe often choose multiple vendors
in Asia and even within the same vendor country is a given when one considers the geopolitical,
political, social, economic, and operational risks that the outsourcers have to take into
consideration.
How De-Risking Works in the Real World
For instance, if say, Fidelity Investments chooses Infosys as the vendor to which they would
outsource a part of their project, such decisions are also accompanied by de-risking wherein
Fidelity would also partner with say, Wipro, and Tech Mahindra so that any risks from Infosys
are mitigated by having multiple vendors.
Such risks can include operational risks wherein Infosys, and its project managers might not be
able to complete the project in the time leading to delays and costs for Fidelity.
Indeed, operational risks are the most common among the reasons why outsourcers select
multiple vendors for their projects.
Apart from the obvious operational risks of slippages and delays, there are other risks such as
social and political turmoil in the cities in which Infosys operates that can lead to Fidelity
choosing vendors spread over multiple regions and cities.
Of course, Infosys can always ensure that Fidelity֜s projects are handled across multiple centers,
and this is again another de-risking strategy that is employed by both the outsourcers and the
vendors.
However, it is usually the case that the outsourcer de-risks from their end before insisting on the
vendors to spread the project across multiple locations.
Mission Critical Operations and De-Risking
While these risks are most commonly cited as the reasons for Western firms to employ de-
risking strategies, it is also the case that outsourcers take into account geopolitical risks as well.
For instance, the risk of war breaking out in India or other countries is a key consideration when
Western firms select the vendors and this is also the reason why many of these firms in the
present times have been outsourcing their work to multiple countries instead of placing all their
eggs in one basket by selecting one country alone.
This happens mostly with BPO (Business Process Outsourcing) projects since 24/7 availability
and continuous operations are needed for call centers and other projects.

Indeed, de-risking by firms in this type of work is quite common wherein Western companies
often insist on Indian and Filipino companies to not only have offshore backups but also
coordinate amongst themselves so that their operations are unaffected in case of any national or
regional turmoil.
Proof of Concept and De-Risking Strategies
Moreover, de-risking is commonly employed when Western firms deal with smaller players
where the risk of the vendor folding its operations and closing its business is a very real one.
Indeed, selecting multiple vendors as well as insisting on the vendors to first accept the project
on a Pilot basis as well as Proof of Concept testing are all different strategies that are employed
by Western firms when outsourcing their work.
Proof of Concept refers to the practice of Western outsourcers checking the capabilities of the
vendors over several months or even a year before they are convinced that outsourcing their
work to the particular vendor would be risk-free or at least carry minimal risks.
A key concern for Western outsourcers is also the very real risk of logistical and infrastructural
issues arising from Asian firms that do not have backups in place in case of natural disasters.
While this applies to any firm anywhere in the world wherein hurricanes and earthquakes can
disrupt operations, the key concern for the Western firms is the aftermath of such disasters that
indicates the resilience of their vendors.
This is the reason why many Western outsourcers often insist on locating their projects in
regions and zones that are deemed to be the least risky as far as their susceptibility to natural
disasters is concerned.
Do not put all your Eggs in One Basket
Lastly, de-risking is a very valid strategy for any firm and more so, for the outsourcers since their
entire business depends on the projects and the operations continuing smoothly and without
interruptions and disruptions. To conclude, it is better not to place all eggs in one basket and
hence, follow de-risking as far as possible.
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Business process outsourcing concept