Contact Center Solutions Featured Article

December 01, 2008

BPO Not Affected by Downturn

By Rajani Baburajan


The Indian BPO sector is an industry that is evolving at tremendous speed in terms of service lines and delivery capacity and now accounts for approximately 40 percent of the global offshore market.
 
According to Nikhil Rajpal, principal of Everest Group, a research and advisory firm, although the current crisis in the financial services sector will have a short-term impact on the outsourcing industry, it is likely to maintain a strong growth rate in the coming years. Information technology (IT) outsourcing, he claims, is likely to be more hit than BPO because spending on IT tends to be more discretionary than spending on business processes.
 
Rajpal exchanged his views on the Indian outsourcing industry with TMCnet in a recent interview. Our exchange follows:
 
What is the outlook for the global outsourcing industry in 2009-10?
 
If you look at recent history, outsourcing has been growing at 30 percent per year. From a long-term perspective, say in a five-year perspective, we expect the industry to remain healthy and maintain a potentially strong growth every year. However, in the next year, there will be some impact of the slowdown; we feel it will grow below 30 percent. There will still be strong growth, but it may not be of the same rate.
 
I think industry will recover in 12-18 months hopefully to its normal growth rate. It will continue to grow even now, but will slow down from its traditional level for 12-18 months. The industry is likely to regain its growth hopefully in 2010. It should be back to strong growth by then.
 
During the global economic crisis, do you see emergence of more countries on the outsourcing map?
 
Even today there are about 50 different countries that are being used as destinations by companies to offshore work. Economic crisis affects everybody. I don’t see any fundamental change in the current scenario.

How much will Indian BPO industry be affected in the wake of financial meltdown in the US and European markets?
 
If we look at the outsourcing industry, broadly we can look at IT and BPO. In this, I think IT will be affected more by the downturn because of more discretionary spend. People can withdraw or not do some of the optional spending. IT is often, though not always, about developing new applications and projects, which can be stopped in the long run.
 
On the BPO side, while the meltdown of financial institution does mean that some work may get affected, in the long run, the more the companies in the West need cost saving, the more they will offshore.
 
I think there will be stronger recovery for the BPO. Companies have people doing their work in the U.S., U.K. and Europe. Now they can get the same work done at a lower cost. Thus BPO gets more importance.
 
What is your guidance to the outsourcing industry to improve client-base and bottom line?
 
Most companies understand the solution for these. There are two things. First, they will have to find new sources of revenue. Almost 40 percent of the revenue should come from banking/financial service agencies. All companies are already doing that.
 
Secondly, they have to invest to create growth. Until now the industry was about people. Now, companies need to invest to create non-linear growth which means adding more work without adding more people.
 
How can technology play a lead role during the crisis?

Companies are developing new solutions like platforms, which can reduce the need for dependence on people. For example if you needed 100 people to do a work, you may get it done with 80 with the help of the latest technology.
 
But I don’t see downsizing as a positive step to solve the issue. Companies should find new growth areas for their businesses so that they can utilize the existing manpower.

Do you expect new business verticals adopting outsourcing to improve their business?
 
Yes, we clearly see a trend of outsourcing being spread to different areas. It more or less started with just financial services, but now it is spreading to different verticals such as manufacturing, media, retails, and automotive industries. As more and more companies in these sectors are entering in this field including the automobile industry as well as design engineering, customer care, IT, and marketing support are all becoming popular in the BPO industry.

What are the latest trends in the outsourcing industry?

The latest trend among BPO companies is to find growth. Earlier it was about labor arbitrage - simply moving jobs from high-cost countries to low-cost countries and doing the same things the same way. I think more and more companies are now looking at solutions not just people. They are looking for companies that have domain knowledge and technological solutions.
 
Application development is the latest trend in IT industry. Most of the work until now concentrated on IT maintenance. Now more and more companies are looking for IT infrastructure outsourcing. It includes security, servers, desktops, and laptops.
 
Apart from recession, do you see any major challenge to the industry?

(Referring to the recent terrorist attack in Mumbai, India) these are issues of great concerns to the industry. It will certainly have impact. Not overly worried, but I am concerned. In spite of all these, India holds a strong position in outsourcing. The industry remains most competitive.
 
 

Rajani Baburajan is a contributing editor for TMCnet. To read more of Rajani's articles, please visit her columnist page.

Edited by Stefania Viscusi


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