Along with growing in sophistication, India's business process outsourcing industry is expanding at a rapid clip, a sharp contrast to the information technology services sector which has struggled to recover after the global financial crisis of 2008.
The faster growth is driven by cost pressures at large corporations in Europe and the United States which are now outsourcing entire processes rather than parts of processes they used to earlier. Such a development, while helping reduce costs, also calls for advanced skills and expertise at Indian BPO firms.
"Traditional BPO is changing towards high-end knowledge and skilled-based work. Clients are cutting their IT outsourcing spend and shifting it to BPO budget. This has resulted in a substantial gain in the BPO spend," said Biswajit Banerjee, senior analyst at the Indian arm of European outsourcing advisory Pierre Audoin Consultants.
So, therefore, in the December quarter, while Infosys as a whole clocked about 6% growth in revenues, its BPO arm grew by 41%. In the same period, Tata Consultancy Services' BPO unit grew by 39% compared to the company's 22 % rate. TCS gets 12.4% of its $10.17 billion revenue from the BPO arm while for Infosys it is about 5% of its $7 billion sales.
At about Rs 84,800 crore ($16 billion) in export revenue and an employment base of some 9 lakh professionals, India's BPO industry is still much smaller than the IT services sector that earned a little over Rs 2 lakh crore ($40 billion) from exports and employed as many as 13 lakh. Vipul Khanna, who heads BPO operations at Cognizant Technology Solutions, said that Indian BPOs are being called on to do complex work, which has in effect increased the potential basket of services they can offer.
In insurance, for instance, while Cognizant earlier handled policy and claims management tasks, it now also helps insurers take business decisions on new underwriting support and claims adjudications. "Globalisation of businesses, regulatory changes and virtualisaton of business processes through mobility and cloud are driving rapid expansion," Khanna said. Cognizant is scheduled to announce its December quarter results on Thursday.
There is also a shift in the nature of demand, with more clients now asking for more domain-focused skill sets, industry-specific knowledge, and all of it at client locations, said Rahul Singh, president for business services at HCL Technologies. HCL turned around its loss-making BPO arm a few quarters ago and recorded a double digit operating margin for the first time in the December quarter.
Revenue from BPO services fetch about 4.4% of HCL Technologies' total sales of $4.4 billion. "Right now in the US there are major changes taking place in healthcare and banking which require an increase in labour to support them," said Cathy Tornbohm, research vice-president for BPO at Gartner. Gartner estimates the global BPO market to be worth $176 billion by 2016.
Sid Pai of ISG, one of the world's largest sourcing advisory firms, believes that there is a fundamental change in buyer behaviour with clients ready to outsource not just noncore functions.