With no slowdown in sight, India Inc. drives headlong into the global BPO market.

by Phil Fersht

People who live and work in India appear to have no concept of how to slow down in traffic: Cars, motorbikes, trucks, and buses in Indian cities all focus on where they are headed. Rather than look around to see if the way is clear, they honk their horns to tell others to get out of their way, with a fearless disregard of the risks and consequences.

Much the same can be said of their rampant services industry, where their businesses have refused to slow down, check their side mirrors or tap their brakes, for fear their revenues or profit margins will be seriously impeded.

If you had looked at the India BPO industry just three years ago, you would have observed a handful of local providers that were trying to get in on the rear of the action that was then being enjoyed entirely by Western incumbent BPO providers; namely, Accenture, ACS, Capgemini, and IBM. Now the leading global enterprises are all including top-tier Indian BPO providers on their shortlists for BPO business, most commonly, Genpact, Infosys, and Wipro for finance and accounting, TCS for human resources and call center, and Cognizant for some industry-specific areas such as life sciences.

Next, look at the up-and-coming Indian BPO providers to see the sheer scale and potential of this industry. This includes firms such as WNS, EXL Service and Cambridge Solutions, all eagerly taking on BPO services with smartly focused and low-cost business services. The figure on page 47 gives an overview of the competitive landscape in the BPO industry and how several Indian firms are already firmly established as viable competitors in the market.

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Infiltrating Global BPO
With all the competitive dynamics and experiences from the decade-long surge of IT outsourcing, we are seeing a swift maturation of the BPO industry. Service providers have quickly recognized which business models are profitable and scalable, and those who want to deliver BPO services have pretty much made their moves into the market. We are also seeing a distinct breed of supplier approaching this market from one of four areas:

• Multi-tower Outsourcing Firms. These are established global outsourcing firms that come from a deep IT services heritage, possess global delivery infrastructures, and have significant BPO engagements underway with multiple clients across the BPO value spectrum of finance, human resources, and procurement functions. Infosys, TCS, and Wipro have recently joined this elite group, competing effectively for multi-tower ITO/BPO engagements with Western incumbents Accenture, ACS, Capgemini, HP (EDS), and IBM.

• Pure-play BPO Providers. This group of outsourcing providers specializes in delivering “pure” managed business services within a specific business tower; for example, ADP in HR or Genpact in finance and accounting services. Key Indian-headquartered service providers in this category include EXL Service, Genpact and WNS—all highly-competitive and established providers in finance and accounting and call center outsourcing services.

• Niche Specialists. These providers tend to specialize in delivering specific business processes within a business tower; for example, Mercer in employee benefits outsourcing and NCO in collections. We are seeing several niche India BPO firms currently competing in this category, including Cambridge Solutions, Firstsource, Fractal Analytics and iGate. Even Oracle is providing knowledge process outsourcing services in this category with its recent acquisition of i-Flex solutions.

• IT Outsourcing Market Entrants. These are established IT-services providers that are looking to penetrate the market by mining their existing base of IT clients. This is a category where we are seeing some aggressive market activity, with Indian ITO providers Cognizant, HCL, Satyam, and Patni all taking on BPO engagements with their clients over the past 18 months. These providers view the ability to offer hybrid IT-BPO services to their clients as crucial to their business. What’s more, should they fail to offer some BPO services, they run the risk of losing future business to competitors with broader business-focused outsourcing solutions.

Real Business Value
The Indian providers are hell-bent on moving up the business value chain and offering higher value services to their customers. They are quickly realizing the way to differentiate their businesses is to focus on areas where they can add value, while achieving significant cost-savings for their clients. We’ll talk more about several of the key providers and their strategies in a follow-up article, but we already spent time in Delhi with NIIT Technologies, which is delivering innovative offerings to major enterprises in the travel and retail industries; Patni, which has been making a stealth move into the BPO market with some landmark engagements in financial services and professional servicesmarkets; and EXL Service, which has been pursuing BPO clients in the investment community by proving high-caliber investment personnel to support Wall Street clients at significantly lower costs.

The Indian services economy is still moving ahead, almost oblivious to market conditions, while combating its challenges of wage inflation and appreciation of the Rupee. The recent fiscal results of the leading India providers showed the majority are still recording both growth and profit margins in the vicinity of 20 percent or more, and the Indian government has supported its services business by prolonging the Software Technology Parks of India tax break for a further year, which gives its local providers an additional 7 percent cost advantage over the western services firms with Indian delivery centers.

Those skeptics who proclaimed an early demise of the Indian services industry are still eating their words—and will likely do so for some time to come. FAO