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Chapter-I
1.0 Introduction: An overview of Indian BPO industry
It all started in the early 1990s, when business process outsourcing in India was mainly
associated with medical transcription. Those were certainly small beginnings, but still their
contribution to the growth of the BPO industry cannot be denied. Growth in real terms
however accelerated only after the Indian government liberalized the telecommunications
sector in the late 1990s, allowing private participation in critical areas such as international
long distance calls and Internet telephony. This provided the right impetus to the outsourcing
industry and resulted in the creation of the customer service industry, known more popularly
as the call centre industry.
Since that time, the outsourcing industry in India has never looked back and has consistently
endeavoured to achieve newer milestones with each passing year. Business process
outsourcing in India, which started around the mid-90s, has now grown by leaps and bounds.
India is now the world's favoured market for BPO companies, among other competitors, such
as, Australia, China, Philippines and Ireland. The BPO boom in India is credited to cheap
labour costs and India's huge talent pool of skilled, English-speaking professionals.
Research by the National Association of Software Services and Companies (NASSCOM)
has revealed that quality orientation among leading BPO companies, 24/7 services, India's
unique geographic location and the investor friendly tax structure in India have all made the
BPO industry in India very popular.
In India, Business Process Outsourcing (BPO) is the fastest growing segment of the ITES
(Information Technology Enabled Services) industry. Factors such as economy of scale,
business risk mitigation, cost advantage; utilization improvement and superior competency
have all lead to the growth of the Indian BPO industry.
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1.1 Background information on India:
India happens to be the seventh largest country in the world occupying an area of 32,87,590
sq km with a mainland which stretches from longitudes 68 degree 7' and 97 degree 25' east
and latitudes 8 degree 4' and 37 degree 6' north. It is the second-most populous country with
over 1.2 billion people, and the most populous democracy in the world.
Bounded by the Indian Ocean on the south, the Arabian Sea on the south-west, and the Bay
of Bengal on the south-east, it shares land borders with Pakistan to the west, China, Nepal,
and Bhutan to the north-east; and Burma and Bangladesh to the east. India is among the
only three countries in the world that manufacture supercomputers, the other two are US and
Japan and happens to be one of the six satellite launching countries.
The economy of India is the fourth-largest in the world as measured by purchasing power
parity (PPP), with a GDP of US $3.36 trillion. When measured in USD exchange-rate terms,
it is the tenth largest in the world, with a GDP of US $691.87 billion. India was the second
fastest growing major economy in the world, with a GDP growth rate of 8.1% at the end of
the first quarter of 2005–2006. However, India's huge population results in a relatively low
per capita income of $3,100 at PPP.
India is home to Hinduism, Islam, Christianity, Buddhism, Jainism, Sikhism and other
innumerable religious traditions. Hinduism is the dominant faith, practiced by over 80% of
the population. Besides Hindus, Muslims are the most prominent religious group and are an
integral part of Indian society. Judaism, Christianity, Zoroastrianism and Bahaism also have
their followers in India but they are very small in number.
The country's economy is diverse and encompasses agriculture, handicrafts, industries and a
multitude of services. Services are the major source of economic growth in India today,
though two-thirds of the Indian workforce earns their livelihood directly or indirectly through
agriculture.
In recent times, India has also capitalised on its large number of highly educated people who
are fluent in the English language to become a major exporter of software services, financial
services and software engineers.
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1.2 Background of the study
In a world where information technology has become the backbone of businesses worldwide,
‘Business process outsourcing' is the process through which one company hands over part of
its work to another company, making it responsible for the design and implementation of
certain business processes under the requirements and specifications of the outsourcing
company.
Business Process Outsourcing benefits every business in the long run. Since technology is
changing so fast, it has to be leveraged and used to the maximum to deliver competitive
advantage to a company.
Business process outsourcing integrates people, processes and technology to help
organizations gain significant reduction in operational costs, and create new avenues in their
business. The Business Process Outsourcing industry in India has been growing 70 percent a
year and is now worth US $1.6 billion, employing 100,000 people.
Companies worldwide are increasingly outsourcing part of their business processes; 80% of
companies use at least some sort of outsourcing (Wadhwa & Ravindran, 2007). Lahiri and
Kedia (2009) state business process outsourcing adds a new dimension to the practice of
global sourcing of services. The growing number of global contracts and alliances in this area
clearly demonstrates organizations’ belief in the value proposition (Mehta et al, 2006).
Business process outsourcing involves delegating various processes, as opposed to
standardized activities, of a firm’s value chain to specialized suppliers (Lahiri & Kedia,
2009), and is increasingly mentioned as a strategic choice for companies looking to focus on
their core business, while achieving cost reductions, improving their service quality, and
increasing shareholder value (Sharma & Saxena & Aanand, 2005).
Research by Lacity, Willcocks, and Rottman (2008) indicates that the global market for
business process outsourcing was about 350 billion dollar in 2010. In 2005 the value of this
market was only 140 billion dollar. An annual growth rate of 10 - 20 percent is to be expected
for years to come.
India is, according to many papers, the leading destination for Business process outsourcing
(Sharma et al, 2005; Mehta et al, 2006), with revenues over 2008 of about 40 billion dollars
(KPMG, 2009). Global providers as IBM, Accenture, and Genpact employ close to two
million people in India.
The NASSCOM 2012 strategic review describes low cost delivery, high caliber talent pool,
language skills, infrastructure, and focus on sustainable growth as the main reasons for
companies to outsource their business processes to India.
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The Indian government's liberalized investment policies have resulted in several foreign BPO
companies entering Indian markets, which has been a major contributor to the growth of the
Indian economy.
In addition to the central government's intervention, state governments are also competing
with each other to offer more favourable business environments in order to attract BPO
companies to set up development units in their states. This kind of competition is helping the
industry grow at an astronomical rate.
Indian companies are enhancing their global service delivery capabilities through a
combination of Greenfield initiatives, cross-border mergers and acquisitions, partnerships and
alliances with local players. Global software giants like Microsoft, Oracle, SAP and many
others have established captive development centres in India over the years.
Indian authorities have made efforts to further strengthen the information security
environment in the country, and special initiatives have been taken to enhance the legal
framework. Many companies in India have already aligned their internal processes and
practices to international standards such as ISO, CMM, Six Sigma, etc. which have helped
establish India as a credible outsourcing destination.
The BPO sector has been a key beneficiary in India's growth, with the cost of international
connectivity declining rapidly and quality of service improving significantly. India's National
Association of Software and Service Companies (NASSCOM) have played a critical role in
outsourcing by acting as a coordinating body for the industry. It conducts surveys and
conferences which help in the dissemination of knowledge and research in the outsourcing
industry.
As per NASSCOM, "While India's low-cost talent pool has helped its businesses grow;
global incumbents have also recognized India's inherent advantage and have mastered this
capability by off-shoring more work out of India." India's competitive advantage lies in its
ability to provide huge cost savings and thus enabling productivity gains.
Over the years, BPO has become the second largest segment in Indian IT/ ITES industry and
also the fastest growing. The scope of Business process outsourcing has widened over the
past few years. Customer Care is the largest contributor in the BPO segments.
The last few years have witnessed the industry evolve from executing projects at the lowest
end of the value chain, to one where Indian players are aggressively bidding for and winning
large-scale turnaround projects. At the same time, the Small and Medium Providers (SMPs)
in this sector are holding their own during these difficult times. The SMPs in India are
integral to the growth engine of the industry in particular, and the Indian economy in general.
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1.3 Importance of BPO industry in India
The role played by BPOs in boosting India’s economy shows that the IT sector has been
contributing largely to the economic growth of India. The growth in the contribution of
BPOs to Gross Domestic Product has shown a steady rise from 1.2% to 6.4%. The
growth rate of BPO sector is around 28% in the last 2 years. In fact this industry has
provided job to around 1.6 million people, more over this industry assures an attractive
standard of living. It is hence evident that the BPO industry is making an impact on the
Indian economy even in the today’s scenario of Global Meltdown.
BPO provides quantifiable benefits through improved efficiencies, lower overhead,
reduced payroll and benefit expenses, and fewer capital investments. It is important to
note that BPO provides access to proprietary workflow systems, process reengineering
skills, and innovative staffing and delivery models, coupled with world-class technology
delivered by experts.
Companies that want to grow internationally must continuously invest in infrastructure
and find talent around the world and this is possible only trough business process
outsourcing. Many outsourcing providers are already established globally and help in
increasing the capabilities of the companies that are outsourcing their work to these
BPOs.
India has inherent strengths, which have made it a major success as an outsourcing
destination. India produces the largest number of graduates in the world. The name of
India has become synonymous with that of BPOs and IT industry hence the name BPO
India. Besides being technically sound, the work force is proficient in English and work at
lower wages in comparison to other developed Countries of the world. India also has a
distinct advantage of being in a different time zone that gives it flexibility in working
hours.
All these factors make the Indian BPOs more efficient and cost effective. In order to
meet the growing international demand for lucrative, Customer-interaction centers, many
organizations worldwide are looking to BPO India.
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1.4 Research questions
1. What are the general advantages and disadvantages of business process
outsourcing?
2. What are the different services provided by Business process outsourcing in
India?
3. Why do western companies outsource their business processes to Indian
companies?
1.5 Objectives of the study
1.
To discuss the various drivers and challenges of Indian Business Process
Outsourcing (BPO) Industry
2. To study the economic factor affected by the BPO industry
3. To study the satisfaction level of Companies outsourcing their businesses to India.
1.6 Method of study
In chapter 2 definitions of terms and in chapter 3 Background and theory are based on
literature review; therefore secondary data is used.
In chapter 4 facts and findings is based on secondary data of chapter 2 and chapter 3; pest
analysis is carried out by the author according to this data.
The results of this analysis with the theoretical background of chapter2 and chapter 3, lead to
the answers to the research questions in chapter 5