Challenges for The Indian BPO

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Authors: Niharika
Faculty Member
ICMR (IBS Center for Management Research).

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Experts point out that continued high growth in an industry can be an issue because it strains systems and governance processes that need time to mature and to be institutionalized. Indian BPO industry is currently facing the challenges arising out of its stupendous growth. Can it successfully tackle these problems and emerge a winner?

The IT enabled services (ITES)¹ and Business Process Outsourcing (BPO)² constitute the fastest growing industry in India. BPO industry is considered to be a part of the ITES industry. The Indian ITES sector is expected to generate nearly 2 mn jobs in the country in the next few years. The revenues from this industry, which stood at $1.4 bn in 2002 are expected to rise sharply to $24 bn by 2008 according to a Nasscom-McKinsey report.

It's hot...

Today, India is the hottest destination for any company which wants to outsource its business processes. But what can be the reason for India being so popular with the companies worldwide? The attractiveness of India can be contributed to three basic factors - Cost, People and Environment. India ranks first among a host of desirable nations in terms of cost (which includes employee cost, infrastructure cost, management cost and the tax structure). It beats all its competitors on the people front as well.

The people factor is evaluated on the lines of size of the job market, workforce education level, language barriers, past outsourcing experience and employee retention. When it comes to environment (which includes country risk, infrastructure, cultural compatibility, proximity etc.) however, India lags behind countries like Canada, Australia and Ireland.

This is also being taken care of by government initiatives like the corporate tax exemption to all ITES companies till 2010. Apart from these, the fact that India has 53 of the 83 SEI CMM Level 5 companies³ and that companies outsourcing to India have experienced cost savings in the range of 30% in the first year itself, have added to the attractiveness of India as 'the' destination for outsourcing. Given the strengths of India, it is no wonder that it is the first choice of nearly 82 % companies in the US for outsourcing.

The scenario however, is not as rosy as it looks, for this sector with enormous potential. Like any other industry during its growth phase, this industry is also going through its share of turbulence. The fact that the growth has been very sharp has added to its problems. However, all these ups and downs would help the industry in stabilizing and maturing. At least that's what experts and past experiences say.

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1] The ITES sector includes call (contact) centers, legal database (transaction) processing, technical helpdesks and telesales.
2] The BPO sector includes HR administration, accounting services and other back-office tasks and is a constituent of the ITES sector.
3] SEI CMM is the Capability Maturity Model of Software Engineering Institute, USA. It is a standard of excellence to measure and certify different practices of engineering, technology and management. The Levels of excellence range from Level 1 to Level 5, with Level 5 being the highest level.