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India: The Maturing of a BPO Market By Susheel Kurien June 2003 A recent survey of outsourcing-center.com readers found that a whopping 62 percent of those who had implemented offshore outsourcing initiatives had selected India as their destination of choice. The figures for other Asian outsourcing powers paled in comparison, with the Philippines, China and Malaysia receiving between 2 and 3 percent of the vote. Clearly, when it comes to choosing an offshore outsourcing destination, India continues to lead the pack. Admittedly, the experiences of companies outsourcing to India have been a mixed bag. Some, especially captive players such as General Electric Co. and American Express Co., whose examples are most often quoted by India's proponents, have significantly ramped up their outsourcing initiatives as a result of positive experiences. Others continue to monitor results, waiting for the savings and quality improvements to kick in. And, for a few companies, the India experience has been an unfortunate one.
Until recently, the India opportunity has been leveraged with captive or joint venture operational models - primarily because the outsourcer had large requirements, upwards of 5,000 to 6,000 seats. The lack of relevant third-party players, who could meet the demanding requirements of some of the world's largest corporations, made captive operations the norm. Then, starting in 1999-2000, the number of entrepreneurial, third-party start-ups mushroomed in India, funded by venture capitalists who were quick to spot the sector's potential.
Fueled by this VC activity, the market today is vastly different. The industry has gone through a substantial learning curve over the past 12-18 months, and a new class of powerful third-party players has emerged, representing a "Tier 1" cut. In 2002, the India BPO industry witnessed its first phase of consolidation, with CustomerAsset being acquired by ICICI OneSource, Spectramind by Wipro, and Warburg Pincus buying the British Airways stake in WNS (formerly known as Speedwing World Network Services). In addition, established IT services firms such as Infosys and Satyam moved into the space. This year will see further consolidation in the industry.
Unlike the earlier VC-funded entrepreneurial ventures, this new breed of players is large, well-funded and has the platform to offer a whole spectrum of both contact center and back-office processing services across the value chain. What is interesting is that most of these companies are not linked to IT services providers but still have the scale, credibility and resources to be attractive to U.S. majors seeking viable partners.
These new-breed BPO providers have the capital to invest in infrastructure, well- planned, scalable and robust platforms, and adhere to global standards of quality, technology and people practices. This third-party platform is now an established one, offering a very attractive alternative to establishing captive operations, allowing outsourcers to reap the full benefits of the India advantage.
An interesting distinction between this new breed of players and India's early outsourcing players is the domain focus that companies such as WNS (airlines) and ICICI OneSource (financial services) bring to the table. Recognizing that an initial entry into India is likely to involve relatively simple, low-risk transaction processing, IT-based players may very well benefit from a relationship advantage.
However, as more strategic sourcing initiatives get underway in the latter part of 2003, business stakeholders will increasingly demand providers with domain expertise and transaction processing focus, in addition to excellent delivery capability (a "table stake" in the world-class BPO game).
While a variety of options exist for companies looking to outsource to India, US corporations hoping to successfully outsource to a third-party provider in India would do well to follow a few basic guidelines:
Yes, consolidation will occur in the coming year, but the marquee names that have successfully harnessed the power of the Indian third-party platform, and those that intend to, will pay careful attention to the new breed Tier 1 BPO providers that have emerged. A prudent strategy would be to balance the perceived benefits available through an IT-based BPO with the clear advantages of a player that is focused on the domain.
SUSHEEL KURIEN is President, U.S. Operations, at ICICI OneSource (www.icicionesource.com), one of India's largest third-party BPO services companies. The company has offshore facilities in Mumbai and Bangalore and international business development offices in New York and London.
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2003 Financial Executives International. Reprinted with permission.
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