Nearly all of these presentations focus on the success of captive business process service centers for firms like General Electric Co. and Ford Motor Co. But while these captive centers will continue to grow and expand, I have concerns about the viability of many India-based providers who are attempting to serve multiple clients in the global business process outsourcing marketplace.

Lack of infrastructure investment and scale will make it difficult for many new India providers to win high-value contracts and demonstrate sufficient security back up to concerned clients. Most of these firms -- and many of the established mid-sized software firms in India -- will not survive structural changes affecting the sourcing industry.

Nevertheless, I believe that the upcoming consolidation of the India offshore BPO market will favor a handful of the largest IT service providers in India who are now building BPO resources. Consolidation will also provide opportunities for offshore providers in other countries such as the Philippines that strategically take advantage of the lessons learned from the India BPO model.

Reflecting these market conditions, we can expect to see the first stages of the contraction of the India offshore BPO model during the third and fourth quarters of 2003. This contraction in the number of suppliers will initially benefit the larger India BPO suppliers who have a strong IT services base. But nevertheless, there are still significant opportunities for smaller BPO providers in India, the Philippines and in several offshore countries to grow and succeed in the highly competitive global BPO marketplace. The successful firms will need to implement the strategic plans that take advantage of competitors' weaknesses and transform their operations to meet the complex needs of the market.

For example, successful firms will:

• Recognize the changing needs of the marketplace and move toward fully integrating transaction and process outsourcing. This value-added service bundles and integrates multiple functions in a process and is sold as a total solution. In this market scenario, the offshore provider who just delivers low value transaction outsourcing will not be able to compete. The exception will be the few transaction processing outsourcers who can achieve "best of breed," world-class operational efficiency.
  
  
• Recognize that because of the absence of new advanced technology ("killer applications"), the focus of global market needs has shifted toward service excellence/customer satisfaction. To date, few offshore BPO firms in any country promote customer satisfaction in their presentations. Successful firms will be be "customer focused" and invest in staff to understand customer needs and build close, long-term relationships with their clients. The goal is to be seen as a partner -- not as a vendor.
  
  
• Recognize that understanding client needs is critical because frequently the buyer of BPO services is the CFO or division head, a very sophisticated buyer who focuses on value-added business benefits when selecting BPO providers. Nearly all offshore providers have little understanding of how to sell and build relationships with CFOs in North America and Europe. This is a complex sale that is much different than labor arbitrage sale to the IT department manager.
  
  
• Recognize that partnering with larger offshore providers or well-established firms in Europe or North America will be necessary to successfully penetrate many global 2000 firms and participate in high-value contracts. In many cases, the larger firms "own" the client relationship through a track record of outstanding service.
  
  
• Offshore providers need to quickly build the infrastructure and develop the value proposition to attract global partners. Successful firms will move quickly to fill the partnering slots with the best partners and preempt the competition. The window of opportunity to achieve world-class partner relationships is no longer than a year.
  
  
• Recognize that in light of 9/11 and the India/Pakistan conflict, successful offshore providers will need to develop and implement comprehensive disaster/business recovery programs. Larger firms have the financial flexibility to diversify and build back-up centers in multiple country locations. But all offshore firms must address the concerns of their clients for data security and back-up recovery.
  
  
• Recognize that nearly all offshore providers in the BPO market have limited marketing and selling skills -- and that this represents a great opportunity. Over the past year, I have reviewed many presentations from India offshore providers, and they sound very similar: Very few of these presentations have a powerful, clear-cut value proposition or communicate what differentiates the provider. Nearly all stress labor arbitrage and commodity-like services.

I believe that no offshore BPO provider has a world-class marketing and selling program. Until these programs are significantly improved, it will be years before many such providers build brands that differentiate themselves from competitors. This is a critical weakness in the India offshore model and a major advantage for well-established providers in North America and Europe. It is also a major opportunity for a new or established BPO offshore firm in any country.

The offshore BPO providers who build world-class marketing efforts will jump out from the crowd and quickly be seen as market leaders. But there is no more than a two-year window of opportunity to achieve this level of marketing and consultative selling excellence.

Offshore firms need to implement new strategic business plans to take advantage of the changing market conditions. The firms that move quickly to develop higher-value process offerings and build a culture of customer service will be the market winners over the next five years.

JOSEPH VALES, founder of Rye, N.Y.-based Vales Consulting Group LLC, provides strategic marketing and business development advisory services to leading BPO and venture capital firms. He can be reached at 914.967.3200 or jvales@valesconsulting.com.

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