The Economic Times
NEW DELHI: The software and business process outsourcing (BPO) industry's growth is expected to slow down considerably next financial year, the organisation representing the Indian software industry says in its annual report released Wednesday.
The National Association of Software and Service Companies (Nasscom) report said while the industry clocked a combined growth rate of 28.2 percent in 2007-08, this is expected to slow down to between 21-24 percent in the next fiscal.
But even the projected growth rate of 21-24 percent is "robust" and in sync with the industry target of achieving $60 billion of exports by 2010, Nasscom president Som Mittal told reporters.
He said the industry was "right on target" to achieve the 2010 export goal.
"In the last eight years the average growth rate has been 33.7 percent. We have had as much as 50 percent growth in a single year initially. But it is natural for the growth to stabilise as the industry grows," he said.
The gross revenue from domestic as well as export markets increased to $52 billion in 2007-08 as compared to $39.6 billion the year before.
However, the growth rate fell from around 33 percent in 2006-07.
Exports of information technology (IT) services alone grew by 28.2 percent to gross $23.1 billion, while the BPO sector showed an increase of 30 percent, fetching $10.9 as compared to $8.4 billion the previous fiscal.
Mittal said the industry handled the subprime mortgage crisis in the US well by venturing into industries that were not affected, such as transport, telecom and healthcare.
He, however, admitted that 2007-08 was a "difficult" year because of slowdown in the US economy, the oil and food crises, and currency fluctuations.
Mittal said the full impact of the situation in the US is yet to be felt by Indian companies, and that corporates would have to find ways to cut costs and enhance productivity.
"The cost-cutting measures can have an impact on recruiting process of these companies and the pay-packages offered to fresh graduates," he added.
IT services and the BPO sector has a two million-strong workforce that is increasing by 26 percent annually, the Nasscom report stated.
Mittal brushed aside concerns about the future of outsourcing as it has become a major issue in the run-up to the presidential elections in the US.
"In 2003-04 elections also, offshoring had become a major issue, but the industry has only grown ever since. It is more of an emotive issue. Barack Obama, (the Democratic hopeful) who once voiced his concerns about outsourcing recently acknowledged its importance and referred to it as 'inevitable'," he said.
Showing posts with label Cost Savings. Show all posts
Showing posts with label Cost Savings. Show all posts
Process Improvement, not Cost Savings, Drives India's Domestic BPO Biz
Earlier this year, I wrote about India’s burgeoning domestic market for outsourcing. The demand for BPO appears especially strong, as I wrote last August.
Although the forecasts I cited in these posts were optimistic, they now look downright conservative in light of more recent statistics included in this Knowledge@Wharton India article.
The domestic BPO market was worth $1.1 billion in 2007, up from $100 million in 2002, and is now estimated at $1.6 billion to $1.8 billion, notes the article. According to a report by The Everest Group and India’s National Association of Software and Services Companies (Nasscom), the market could be worth up to $20 billion over the next five years.
BPO providers do face challenges in serving the domestic market. For one, says outsourcing expert Ravi Aron, a senior fellow at Wharton’s Mack Center for Technological Innovation, banking and other industries normally served by BPO providers are heavily unionized in India, and will thus face resistance. Last March, I wrote about a threatened strike by state-owned bank workers if the prime minister refused to disallow outsourcing.
Like Europe, India is also filled with a diverse collection of regional languages and cultures. Also, unlike their U.S. counterparts, many potential Indian BPO clients lack the kinds of sophisticated technology platforms that facilitate outsourcing. Their processes are labor-intensive and “idiosyncratic,” says Aron, and thus difficult for BPO providers to replicate on a mass scale.
Process improvement is exactly what most Indian companies are seeking from BPO providers. Not as cost-focused as their Western counterparts, domestic companies want to step up their capabilities in hopes of expanding their businesses into markets outside India.
Expected to be especially popular, according to Aron and other experts, are vertical services such as mortgage loan processing and property and casualty insurance. Says Aron:
Many of these specialized services companies have the money, but not the managerial capacity or bandwidth to automate their processes and extract efficiencies.
Since margins are lower in domestic BPO deals, providers must figure out ways to cut their cost structures. Establishing operations in tier-2 and tier-3 cities is expected to be a common tactic. This should become easier, thanks to ambitious government efforts to improve the infrastructure in these areas, which I wrote about last week.
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