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Thanks to the economic slowdown, the Global Service Delivery (GSD) model is likely to witness a surge in the coming times since the enterprises would like to maintain margins as well as move to lean and globally competitive cost structures. Traditionally, companies have been averse to outsourcing core functions and activities. This is changing now with recession forcing them to look at outsourcing as a serious strategy to reduce operational cost.

The growth drivers continue to be cost, language skills and availability of specific types of capabilities. Companies that have tasted success in global outsourcing are driving more volumes, looking for new geographies, while those who have begun global sourcing are looking to get a foothold in established geographies. This is further forcing the enterprises to undertake a number of steps like re-engineer processes to eliminate non-value generating activities, define harmonized processes that are scalable and flexible, and increase utilization and productivity. Apart from that, the firms want to automate to reduce time and cost of delivery-integrated IT/BPO services to extract the most from processes and IT systems in real time.

The current economic situation is likely to inspire companies to adopt this model. The companies operating in this arena are also innovating their tools, processes and methodologies to provide higher value services and better alignment. Customers are increasingly looking at the service providers to reduce their capital expenditure. This could be achieved through multiple means like innovative pricing solutions or leveraging new technology trends like SaaS or cloud computing.

Increasingly, enterprises are looking at having the same vendor for infrastructure, application and business service. There is also an increased expectation from service providers. Rather than providing only cost arbitrage, service providers are expected to provide higher value by implementing process best practices, upgrading business domain skills, and strong technology consulting services.

There is also a definite movement towards tier-2 cities since attrition is low and the cost of running operations is also substantially lower than in the metros. Apart from this, many outsourcing firms are exploring having agents working from home in an effort to reduce cost and attrition. However, there are certain technological challenges being faced in the implementation of that concept.

Tech Trends
In the technology arena, platform BPO, which is also known as software-as-a-service (SaaS) is the strongest trend. Platform BPO basically moves customers from a capex to opex model. While investments are high in developing a platform for different verticals, the services are based on number of transactions.

The trend is likely to catch on as enterprises start looking for solutions which are low on capital expenditure. This offers an exciting opportunity to move away from the traditional domain 'call center' service model to a domain intensive 'transformational' service model. The firms which can partner companies in their drive to launch new services as well as reduce opex or improve gross margins are likely to be in great demand.

Experts panel

Gopal Devanahalli, VP and head of the communication service providers SBU, Infosys BPO PV Kannan, CEO, 24/7 Customer Subramanya C, global CTO, HTMT Global Solutions Naveen Joshua, executive director India, vCustomer Dhiraj Sinha, head of technology Practices & CoEs, Perot Systems' Applications Solutions Group

Technology consolidation is another important emerging trend in this arena. It plays a vital role in the BPO industry as it helps save cost in various areas of operations. Consolidation is key to resource optimization and builds a framework to share resources optimally. The economic recession is further likely to drive technology consolidation.

The firms are also adopting unified communications as a collaboration tool. The lure of UC lies in the fact that it not only helps in increasing the productivity per day, per employee but also promotes green advantages by reducing travel and thereby reducing carbon footprints. BPO firms are actively using UC by deploying IP networks as the foundation technology and then deploying UC applications to provide a multimedia collaboration experience.

Many firms are also investing in next generation solutions in customer lifecycle management that predict and optimize customer interaction. These solutions combine advanced mathematical modeling and complex algorithms based on data from the telecom network. There has been an increase in the adoption of dynamic network routing based on the best path available. This can result in lowest latency as well as best cost and efficiency.

Business trends are moving toward a more open and standardized technology community. Voice and data protocols are no longer based on proprietary technology to open standards. Open source systems are also making significant progress.

In technology, there are many advancements being made in voice to data conversion and in network management of the data. As a result, technology costs are lowering and quality is increasing rapidly. From a telecom point of view, VoIP, VPN, MPLS and encryption that protect the integrity of global data transport have been around and are in different stages of adoption.

There is also an increase in the deployment of Multi-protocol Label Switching (MPLS) networks in a big way because they offer a lot of flexibility, while ramping up. More and more companies are also exploring the domestic market in outsourcing especially in sectors like government, retail, BFSI and hospitality services industry.

The Speed-breakers
Traditionally, enterprises have not looked beyond call centers as far as outsourcing is concerned. The most significant challenge for GSD players has been to convince the client of their ability to understand their business and to provide tangible value.

While GSD has evolved over time, there is still a part of work that has to be delivered from customer location or closer to customer location. This is going to pose significant challenge for the pure play Indian vendors in stricter visa regimen by the US and European nations.

Apart from that, the year gone by saw a substantial increase in labor costs in offshore services, affecting margins. Since, typically, technology is the second highest cost (labor being number one) as labor costs increase in offshore services, they are affecting margins; and technology becomes the focus of attention. Fortunately technology infrastructure costs have decreased.

Another challenge is the emergence of new destinations like the Philippines and central America. There is a strong competition from new destinations and Indian firms are under pressure to offer the best services at the most competitive rate.

This year has also seen the industry grappling with another challenge, that of managing currency, which has consumed a lot of time and effort of global service providers. Establishing global standards that work locally and creating a global culture are some of the other challenges.

The industry pricing models are changing from the traditional 'fixed' to 'variable' pricing model which are driven by the performance of the GSD vendor. Many organizations also offer outcome-based pricing which converts the clients fixed costs to variable costs.

India will continue to dominate the global BPO market. However, there is certainly a surge in the emergence of other destinations like the Philippines, China, Mexico and Romania.

The industry is likely to grow in the recessionary environment and introduction of new technologies, maturing of processes and practices will further increase the confidence of the enterprises in the GSD model.

Gagandeep Kaur
gagandeepk@cybermedia.co.in

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