Status Quo and Development Trend of Indian BPO Industry (2)
Source: NASSCOM-EVEREST India BPO Study View: 1623 Date: 2012-04-18

At previous article, we quoted the first part of ”Roadmap 2012 – Capitalizing on the Expanding BPO Landscape”, co-written by NASSCOM and EVEREST, concerning how India BPO sector to develop in 2012. Here, the rest part of this article is displayed as below:

Key action themes for the future

Over the next five years, right choices by stakeholders of the Indian BPO industry could effect a fivefold growth. There is, however, a need for concerted and collaborative action by various stakeholders to create the enabling ‘eco-system’ for future growth of the industry.

Efforts are required across eight action themes for the industry to realize its potential and to maintain and accelerate its growth trajectory over the next five to ten years:

1. Protect India’s cost advantage to ensure that buyer interest, adoption and growth are sustained.

Multiple levers can be used to protect Indian BPO industry’s cost-advantage. As a first step, providers need to diversify their delivery footprint within India through creative and innovative operating models. Movement to low-cost Tier- 2/3 cities is attractive despite lower employability and higher management overheads. Our analysis shows that providers can reduce total operating costs by 20-30 percent by moving to a low-cost city within India. By doing this, the industry can effectively tap labour pools in several states across India. 

In addition, providers will need to increase focus on cost rationalization and revenue de-risking initiatives. These could involve initiatives to 1) increase resource utilization, 2) manage wage cost increases, 3) optimize internal SG&A expenses, and 4) de-risk revenue stream by diversifying the client base and adopting currency hedging strategies.

The Government also needs to maintain support to the industry through appropriate incentives and facilitate creation of infrastructure to ensure parity with other competing nations. These incentives and support mechanisms could include fiscal incentives (e.g., continuation of the tax benefits under the STPI scheme beyond 2009, stamp duty exemptions), infrastructure incentives (e.g., build infrastructure capacity ahead of demand in Tier- 2/3 cities through incentives to direct and indirect participants and increased public-private partnerships) or even changes to labour laws, promotion of SMEs, and removal of some key telecom-related restrictions.

2. Create ‘BPO hubs’ with the enabling physical and social ‘eco-system’ to drive BPO-led growth broader and deeper within India.

Government and industry will need to collaborate to facilitate creation of BPO hubs in Tier- 2/3 cities within India. Creation of BPO hubs is dependent on creation of an enabling eco-system required to successfully operate in Tier- 2/3 cities. This eco-system should include elements of physical (e.g., international connectivity, mass-transport system, telecom connectivity, power, and housing) as well as social (e.g., healthcare, education, shopping and entertainment, security, hotels) infrastructure. Further, there may be an opportunity to shape the creation of infrastructure in a way that it is based on skill availability and the domestic industry footprint within each BPO hub.

3. Increase employability and access untapped talent pools by creating greater linkages between the current education system and the needs of the BPO industry, and facilitating the development of BPO-specific education models.

Initiatives related to education are required to expand the employable talent pool in India. The industry needs to work more aggressively with the Government to create greater linkage between the current education system and requirements of the BPO industry. This can be done by 1) policy changes like liberalization of higher education, 2) increased collaboration between industry and academic institutions to take up initiatives such as introduction of BPO-specific curriculum and improving students’ access to funds for higher studies, 3) introducing coursework changes and teacher training at the school level in accordance with future requirements of the BPO industry. There is also a significant opportunity for private players to step in and create a BPO education industry. Such a move should be based on creating longer-term training programs to improve communication and other skills required by the BPO industry. Specific training programs need to be developed to create several intermediate levels of skills and specialization (between generalists and highly trained specialists), and to bring alternate talent pools (e.g., high school graduates, educated housewives) into the BPO workforce.

4. Encourage the growth of domestic BPO market to enhance the competitiveness of Indian industry, create additional employment, and facilitate development

In order to facilitate growth of the domestic BPO market, specific regulatory barriers (e.g., cap on domestic operations that can be handled from an existing center used for export businesses) need to be removed. In addition, the value proposition of domestic BPO needs to be crystallized and communicated to the buyer community to enable widespread adoption. To be successful in the domestic market, providers will need to develop an end-to-end value proposition and adopt innovative delivery strategies.

5. ‘Up-shift’ the third-party and captive value proposition to effectively deliver against changing buyer expectations

Providers will need to step up to fulfill evolving buyer expectations regarding optimization and transformational value creation. Our extensive interaction with buyers indicates that one of the key initiatives required would be providers engaging with buyers early in the decision-making process. Providers need to become a part of the decision-making process by developing consulting capabilities, creating strategic account-management capabilities, and tailoring their value proposition based on buyer maturity and requirements. Providers will also need to create an improved value-added approach by investing in people, process, and technology-related initiatives. The final aspect of up-shifting the value proposition would be for buyers and providers to create win-win economics by adopting pricing metrics related to process output or business drivers and linking them to business performance metrics. Such a move will incentivize providers to develop into value adding partners.

6. Shape an ‘integrator’ role for the Indian BPO industry in the emerging global services supply chain

As large, mature buyer organizations push offshoring lever harder, a global services supply chain is emerging. There are many examples of multi-location global sourcing networks created through use of captives and third-party vendors. While India is often the nerve center of such networks, other offshore locations offer unique advantages that may not be replicable in India (e.g., Philippines has superior English language and soft skills for customer service operations especially for US buyers, Eastern Europe offers language and time-zone advantages for European buyers). The Indian BPO industry, therefore, needs to aggressively take on a more proactive and shaping role in the global sourcing space. Providers need to continue to expand their delivery network to other low-cost geographies to take advantage of the leverage points offered by these destinations and expand their service delivery footprint onshore to take end-to-end ownership of service delivery. Providers could also identify opportunities to create alliances (mergers, acquisitions, subcontracting) with overseas players to develop compelling propositions for buyers. The industry should collaborate and develop alliances with industry bodies in other competing destinations in order to create an enabling environment for acquiring specialized skills from other emerging locations (e.g., European language skills from providers in Eastern Europe).

7. Communicate the true performance and potential of the industry to a broader set of stakeholders, including buyers, employees and Government

The Indian BPO industry needs to clearly communicate its value proposition to buyers, current and potential employees, influencers, and Government. Specific outreach programs need to be implemented to increase interaction with buyers in order to highlight the growing maturity of service offerings and provide perspectives on perceptions regarding political, economic and social risks. The industry should also partner actively with media to facilitate greater and more balanced communication to the external world through proactive coverage of achievements and potential of the BPO industry. Current and future employees, as well as influencers such as parents of young graduates, form a very critical group of stakeholders for the BPO industry. Individual providers as well as the industry need to promote the attractiveness of BPO as a career option by highlighting exceptional firm-level initiatives for employee development and facilitating information-exchange forums / mass outreach programs at various colleges.

8. Help buyers embrace the overall opportunity of India’s BPO industry in a more meaningful way.

Buyer organizations will need to re-orient their global sourcing decision-making process in order to tap the significant opportunity presented by the Indian BPO industry. They need to adopt a more holistic view of global sourcing opportunities, engage a larger internal stakeholder group, and develop a comprehensive global sourcing plan along with an enabling organization model. In addition, buyers also need to develop sourcing and engagement models with providers that foster integration, optimization and innovation.

The traditional notion of what Business Process Offshoring could deliver for buyers is gradually giving way to a transformation-driven outlook. These changes present significant opportunities for the Indian BPO industry but, at the same time, also necessitate conscious decision-making by all stakeholders. We believe that the eight key action themes outlined in this report will enable the Indian BPO industry to ride the next wave of growth. However, effective implementation will require continuous collaboration between key stakeholders in the industry, including the Government.

Devott Publications
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