BPO rage

The Business Process Outsourcing (BPO) fever is raging in India. It has come as a manna from heaven for software companies reeling from the global economic slowdown leading to declining orders for IT services.

BPO was one of the hottest topics discussed at India’s mega IT show, Bangalore IT.com last week. All the software majors have got into this with their own divisions catering to the rising demand for such services. That the global biggies are placing BPO order to Indian companies is not long big. But the range and profile of companies is now the main interest of the watchers of this segment.

The latest giant considering India for this work is the investment bank Lehman brothers. When such companies come, Indian BPO cups really overflows. For Lehman has roped in two top Indian software companies, TCS and Infosys for these tasks. Lehman has also short listed the third member of the software trio- Wipro. Reports indicate that this investment bank is planning to outsource nearly 40% of its work to the Indian companies.

Another financial giant, HSBC which recently set up its own BPO facility in Bangalore plans to double its strength in two years. It plans to employ over 4000 people at this facility in 2004. Buoyed by order, a big Mumbai-based BPO company InfoWayz plans to scale up its operations to reach 1,500-seat level in mid-2003.

It, however, does not mean everything is hunky dory for the BPO players. Stiff competition is emerging from other competing countries with good software skills and English proficiency such as Philippines. The competitiveness of Indian BPO companies is eroding due to their increasing cost structure. Rising salary levels to attract people to BPO outfits is cited as one of the key hurdles. Increase in other inputs too are increasing making these operations less competitive. 

Analysts warn that Indian companies have to keep their costs down and improve competitiveness. Low level jobs such as data entry work are already being carried out at low cost places such as Sri Lanka. While many BPO companies claim to provide 70 to 90 percent for companies relocating their work to India, the realistic numbers are between 30 and 50 percent. This erosion in competitiveness is something our companies should guard against.

This scenario has implications for IT companies in both hardware and software servicing segments. BPO companies which are heavy investors in IT products and services are bound to look for more favorable terms while placing orders in the local markets. The IT trade has to anticipate these scenarios and be prepared to derive best value from the partnership with BPO companies. In fact, in the years to come , the big ticket clients of IT products may try to drive down their costs with hard negotiations. The margins will be under pressure. The IT resellers should be prepared for some hard days ahead from this segment of customers.