The Indian market is maturing and diversifying, thereby resulting in the
emergence of numerous qualified specialist players. Most organizations are
adopting GSD to trim down costs, accelerate growth, and gain access to qualified
human resources.
The industry has shown tremendous growth in the past year. The industry sees
robust demand from customers, and companies are focused on delivering
best-in-class solutions to their global customers. Deep industry and business
process knowledge, a partnership approach, comprehensive service offering, and a
proven track record enable BPOs to deliver business value to leading companies
in the world.
Global service delivery has given us considerable freedom from ten-hour
workdays, labor shortages, economic constraints, and single point dependencies.
The global service delivery model benefits both the customer as well as the
service provider. It will become more robust over time, as we have seen in the
past with the manufacturing sector.
This integrated global delivery model enables us to support extensive and
profound relationships with both regional and global enterprises.
New Technologies
Most BPOs are technology-driven companies and the foundation of their
operations is the technological competencies of their people. The technology
skills of their engineers span across multiple industry segments. By keeping
abreast with state-of-the-art technologies, they have been able to consistently
partner their customers in their development initiatives.
SOA-based implementation, location-based technology, enterprise instant
messaging, mobility applications, IP transformation, and remote infrastructure
management are some technologies provided by TCS.
To offer powerful solutions to customers in the growing TEM (telephone
expense management) market, HCL has partnered with Tangoe Corporation to combine
Tangoe's platform with HCL's offshore delivery capabilities.
Besides the available technologies, the global service delivery industry is
thinking about new technology trends that are going to revolutionize the Indian
market in the years to come.
Market Trends
Today, India is a preferred destination for outsourcing, and is an integral
part of the global supply chain across markets such as manufacturing, IT,
telecom, retail, and aviation. So, the global service industry is looking at
more fixed price deals, higher value, contracts, and mergers and acquisitions.
A number of market trends are shaping the global service delivery industry.
An important trend is greater domain expertise. Today, clients are extremely
keen to know about the industry. The focus of clients is shifting from basic
skills, cost, and processes to domain knowledge, transition challenges, change
management, HR issues, and governance.
Secondly, in addition to demand for horizontal services like F&A, HRO, and
procurement, there is a need for vertical-specific services. Emergence of
knowledge process outsourcing (KPO) is another important trend.
Building a global delivery capability is gaining significance. Companies need
to focus on not just building a global delivery network but also on creating
right methodologies, assets, and tools for collaboration in this distributed
workplace environment.
In addition, the focus on transformation, improved realization by moving from
input to output-based pricing, and subsequently to outcome-based pricing,
captive sellout, improvement in operational efficiency by many service providers
to offset the impact of re/attrition, lower cost of operation, and value added
service as additional means of revenue are some other market trends.
Key Developments
The year 2008 is going to be very relevant and eventful for the global
service delivery industry. Many key developments have either taken place or are
in the pipeline, and these developments are going to sensitize the whole
industry. String of Pearls is one such initiative to further expand the global
footprints of BPOs like HCL.
To counter attrition, BPOs have direct tie-ups with many educational
institutions. The existing technologies are being replaced by new and more
powerful technologies. The global service delivery industry is focusing on
bundling of services and customer needs. Companies are also ready for mergers
and acquisitions for portfolio expansion and open standard-based deployments.
Emerging Locations
India is growing as an important service delivery hub in the global service
supply chain. With a well-built and vigorous expansion plan for the future,
Indian BPOs are ready to explore the globe.
Different BPOs have different plans to mark their presence across the world.
HCL BPO's String of Pearls is an initiative to further expand global footprint
and multilingual support capability. The company also plans to expand into
non-English speaking countries.
HCL BPO is looking at Poland to cater to clients in Germany (with services in
German); at Morocco to cater to clients in France (with services in French); and
to South Africa to cater to clients in the UK and Holland (with services in
English and Dutch).
For WNS, while India continues to be a preferred outsourcing destination,
given its large cost-effective and high-quality talent pool, locations such as
Eastern Europe, Philippines, China, and Latin America are emerging with
high-quality talent and language capabilities.
While for TCS, India and China, with vast domestic markets and growing talent
pools, are reshaping the global tech world order by diffusing global tech demand
and supply, some analysts estimate that the economies of BRIC countries as well
as Mexico are rapidly expanding. On the other hand, 24/7 Customer is focusing on
Central and Latin America. It has expanded its global presence with two delivery
centers each in Guatemala and Philippines.
Challenges Ahead
At present, India is at the forefront of the global service delivery
industry. The global BPO market is in rapid transition-from cost to value, from
input to output. It is no longer enough to be able to supply services at a low
cost. So, the industry has to look at value, and value not in terms of
PowerPoint, or statements, but value that is measurable, tangible, and that
makes a visible impact on the client's margin line.
On the issue of project implementation, cost is another major challenge.
Investments in implementation cost include the cost of people, technology, and
the cost of handling transition. Companies may recover it either as a separate
item charged on the customer, or include it as a part of their pricing. The
magnitude of project implementation costs, however, cannot be quantified.
Besides, fulfillment of customer demands is another big challenge for the
global service delivery industry. The customer's demand is still very strong and
there is also the expectation of value added services from their outsourcing
partners.
The ability to own end-to-end program implementation; the need for lean
operations; thought leadership, and technology innovations; on-time quality
delivery; and the ability to deliver complex transformational engagements are
major challenges for the global service delivery industry.
Growth Drivers
The global service delivery industry has developed tremendously since its
origin, not only in size but also in terms of maturity-service lines, service
delivery capability, and footprint. The global service delivery industry has
been expanding its delivery network to respond to clients' needs for language,
cultural alignment, redundancy, and 24/7 operations.
The key drivers for growth are change of technology to ensure lower cost of
operation, need for lean operations, newer operators, regulatory changes,
mergers and acquisitions for portfolio expansion, and the ability to deliver
complex transformational engagements. Maturity of the global sourcing model,
competition, and strengthening of the Indian currency will also lead the growth.
BFSI and telecom will lead the growth. Companies in these sectors will
leverage their strengths in telecom and retail to further grow the business. The
leverage verticals are insurance and manufacturing and the focus horizontals are
F&A, KPO, and SCM. The focus in the next two years will be on scaling up
knowledge-based services with 10-15% revenue coming from KPO services, 50%
contributed by voice-based outsourcing and the balance 35% from transaction
processes.
Tips to Improve Quality/Costs
It is important for companies to focus on quality. Their philosophy should
be to embed quality professionals in client engagements rather than have them
available on a project-to-project basis. Quality management should not be an
occasional project to meet service level agreements (SLAs), but be integral to
the way companies work.
Standardized process across multiple lines of business, common IT frameworks,
environment consciousness-Green IT, SOA-based developments, and next generation
applications-are some other measures to improve quality. Efficient network
management system can help reduce TCO and keep QoS consistent. Operational cost
can be greatly reduced by automating network management applications and
centralized NMS.
Companies should be very strict about maintaining EBITDA margins. They can do
this through benchmarking and strict internal cost optimization (by buffer
control and by attrition control), improved realization by moving from input- to
output-based pricing, and subsequently to outcome-based pricing.
Other suggestions to improve quality include tailoring processes for optimum
balance between them, and setting realistic expectations for RoI.
Solutions for Customers
Initially, the evolution of the BPO industry began with the main focus on
being cost effective. Today, outsourcing partners are mature enough to provide
productized services. In addition, clients have matured to understand about the
value addition an outsourcing partner provides. IPTV application, mobile
solutions, next generation transformation, hosted solutions, enterprise
applications, and device-based solutions are useful solutions for customers.
Not all clients can readily embrace business process outsourcing as a means
to change their operating model. Some look to 'trial and learn', moving a few
processes at a time to a partner and getting performance, while others outsource
processes across an entire function. Some companies are comfortable implementing
a global deployment while others wish to transition business unit by business
unit, or geography by geography.
Each company has a different approach to manage performance. Some clients are
skilled at managing a provider's outcome while others wish to work hand-in-hand
with the provider team. Companies should seek to extend their enterprise by
working with a partner who adopts their ways of working, and implementing change
at their pace.
The global service delivery industry offers its clients high-quality,
cost-effective and end-to-end IT services including business process
outsourcing, information technology outsourcing, and technical help desk
support, as well as software development and maintenance.
Hot Destinations
There are numerous unexplored locations (besides a huge talent pool) in
India which can be used to provide a number of services. Other regions that can
offer cost and knowledge advantage and provide a large pool of accessible talent
will also win in the long run. Philippines, China, Eastern Europe (for IT and
engineering skills), and South America are some countries which have huge
potential.
China can also become an important destination. Most Chinese service
companies, however, are focused on the domestic market. The manufacturing
culture is very strong. Reduced overall product cost, improved cash flow,
economies of scale, flexible contract, and reduced capital expenditure make
China an ideal GSD destination.
Philippines has a young population and more than 90% literacy. Its greatest
asset is its people. It has a smart and highly skilled talent pool, and this
strength, combined with cost-competitive salaries, consistent infrastructure,
and business-friendly policies, makes it an important outsourcing destination.
There are many challenges that will continue to inhibit the industry. The
need to demonstrate credibility and reliability, particularly for
knowledge-centric work, ample security safeguards, and a clear labor sourcing
strategy along with global training and workforce management programs are a few
of these challenges. Factors such as cultural and language differences pose a
great challenge to global service delivery.
Arpita Prem
arpitap@cybermedia.co.in
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