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 NASSCOM. Show all posts
Showing posts with label NASSCOM. Show all posts
Coping with attrition
July 14, 2008 | The Hindu
The BPO industry in India is facing the challenge of finding quality human resources, given the current attrition rate.
The BPO industry in India is facing the challenge of finding quality human resources, given the current attrition rate.
Attrition is emerging as a key business concern for organisations. It is turning into a bigger issue than attracting talent. The annual attrition rate is 20-30 per cent (reduction in the number of employees through retirement, resignation or death) across industries in India. It is as high as 44 per cent in BFSI (banking, financial services and insurance) vertical and 35 per cent in BPO (business process outsourcing). Attrition is an expensive phenomenon, potentially impacting the bottom line of businesses.
The cost of attrition is not just the loss of that employee but it includes an array of hidden costs such as recruitment costs, selection costs, training costs, cost of covering during the period and opportunity costs.
The organisational costs associated with the turnover in terms of hiring, training and productivity loss costs can add up to more than five per cent of an organisation’s operating costs, says Cabot Jaffee, Chairman, Global Talent Metrics.
As far as India is concerned, attrition is a serious trend, especially in today’s knowledge-driven marketplace where people are the most important assets. While organisations cope with attrition by devising compelling retention strategies, it is imperative for organisations to predict attrition early in the recruitment process to curtail loss of time, cost and effort.
What is the biggest challenge for the BPO industry in India today? Well, it is none other than attrition. The BPO industry in India, which is expected to employ around one million people by 2008, is facing the challenge of finding quality human resources, given the current attrition rate. According to NASSCOM, the outsourcing industry is expected to face a shortage of over two lakh professionals by 2012. Where is it leading to?
According to Jaffe the challenge of attrition, though not special to India, is unique and intense in a manner not seen in other markets across the world. “This makes it imperative that any knowledge or psychometric tools in this area be locally validated,” Mr. Jaffee says.
However, many industry officials feel that results shown by a psychometric tools (designed to eliminate high attrition risk during the selection process) and attrition are not necessarily correlated.
Survey findings
Global Talent Metrics has conducted a survey in partnership with IIM Bangalore and AlignMark of the U.S.-based tools provider for optimising human capital resources, on the attrition rates in India. The survey reveals that pay, contrary to popular notion, is not the top reason for attrition.
Lack of career growth opportunities and recognition from supervisors are more compelling drivers for attrition. Nearly 50 per cent or more people rate the following four important factors in selecting or leaving a company — clarity or career path, relationship and recognition from supervisor, career growth opportunities and pay. About 70 per cent of the respondents do not consider family-oriented events as important factors to leave a company, although employees conveniently use family-oriented events like marriage, childbirth, need to stay closer to family — as explanation for departure.
Mr. Jaffee feels that to control the attrition levels in an organisation, it should adopt certain recommendations. Fundamentally, a company should select candidate whose preference and aspirations are in line with what the company has to offer. Since job content is key driver for attrition, a well-institutionalised job rotation programme will be a great retention strategy. The company should provide career growth opportunities along with rewards and recognition. The most important aspect is open communication and fair treatment. Along with an open culture, these will increase retention of staff. The last but not the least is the brand image of the company. It will surely stop an employee from moving out.
- SHANTHI KANNAN
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.
India's march towards knowledge process outsourcing
24th June 2008
The widespread success of offshoring business process operations has encouraged a growing number of organizations to offshore their high-end knowledge work as well. The underlying expectation for offshoring these processes is that it will result in additional cost savings, improved operational efficiencies and access to talented labor in low-wage offshore countries like India.
The first wave of business process outsourcing (BPO in India began in the late '90s with simple back office services such as transcribing medical records, answering phone calls and data entry. Later, during the second wave of BPO services in 2002 to 2003, outsourcing firms graduated to more complex transactions such as problem solving and decision-making tasks, which included insurance claims processing and contact center customer service. Finally, in 2006 to 2007, the $7.2 billion BPO sector in India began providing knowledge-intensive business process outsourcing services which has since become the third wave of BPO services.
Knowledge intensive business processes require significant domain expertise. Examples include developing structured products for investment banks, patent valuation, legal and engineering analytics, and supply chain and financial analytics. Perhaps the major distinguishing feature of the third wave compared to the others is the fact that companies are now recruiting experts with professional degrees and up to 15 years of experience. As such, they are able to bill at higher rates and increase revenue.
Evolving outsourcing strategies are leading businesses towards offshoring high-end processes to low-wage destinations, a trend referred to as knowledge process outsourcing, or KPO. From a supplier perspective, Indian BPOs are moving towards offering KPO as they face declining profit margins from more basic business processes such as data entry, medical transcription and outbound calls, in addition to facing high agent attrition. Currently, India is in the midst of a major cultural shift in which workers are beginning to disregard a career in BPO as a viable long term option.
In comparison to BPO, KPO delivers higher value to organizations that offshore their domain based processes, thereby enhancing BPO's traditional cost-quality paradigm. The central theme of KPO is to create value for the client by providing business expertise rather than process expertise. Thus, KPO entails the shift from simple execution of 'standardized processes' to processes that demand advanced analytical and technical skills as well as decisive judgment. The key sectors within the KPO industry, for example, include data search, integration and management services, financial and insurance research, supply chain management, biotech and pharmaceutical research and computer-aided simulation and engineering design.
While growth in BPO was driven by labor arbitrage and leveraging the IT skill sets of engineers and developers, KPO is likely to be driven by factors like breadth and depth of coverage, domain expertise, location advantage, sales and marketing capabilities.
Large IT service companies such as IBM, Wipro and Tata Consultancy Services (TCS) are also looking to enter the KPO space by shifting from traditional IT services to higher level engineering product design. These big players are keen to acquire smaller niche vendors within different vertical spaces to provide their customers with a broad spectrum of BPO, KPO and IT services. In the last few years, the BPO industry has witnessed some consolidation as larger companies look to acquire smaller niche players to gain the scale (volume) and sector specialization which is necessary to maintain margins in a highly competitive environment. The purchase of Indian firm Daksh by IBM in April 2004 is just one example of a major player looking to acquire contact center expertise through an offshore acquisition. Datamonitor expects a similar round of consolidation in the Indian KPO industry in the near future, as presently there are a large number of startup organizations catering to a niche audience. One such example is the acquisition of KPO player Marketics by WNS (one of the biggest BPO firms in India) to enhance their knowledge services business.
According to NASSCOM estimates, the KPO market is expected to grow from $1.2 billion in 2003 to $14-16 billion by 2010, and India is expected to account for 65-70% of this market. Some of the large players in the Indian market include third party vendors like Evalueserve, Genpact, WNS Global Services, Firstsource, McKinsey & Co, Accenture and Pangea3. Other countries such as China, Russia, Poland, the Philippines and Hungary are also looking to take advantage of KPO opportunities and will introduce new services in this market.
Against this backdrop and given the massive potential in the market, the KPO industry in India will witness an increase in the number of KPO players. Some firms will grow KPO services organically while it is expected the larger IT and BPO players will embark on an aggressive acquisition strategy to buy smaller niche players.
As BPO firms redirect their services portfolio toward higher value and higher margin business, more services that fall under the KPO classification will be offered. Services such as legal and business analytics, equity research, clinical trials analysis, drug discovery, pharmaceutical research, and supply chain analytics will emerge as core KPO offerings. This list is not definitive, however: over time, the overall breadth and depth of services in KPO will continue to expand.
Saurabh Virmani
‘BPO space has huge scope, needs new biz paradigm'
Tuesday, 10 June , 2008 | Business Line | Sify.com
Bangalore: ‘BPO’ may be a good catch phrase, but the industry is past the era of mere offshoring; today it is all about globalisation of services and achieving domain expertise and efficiency, said Pramod Bhasin, Vice-Chairman, Nasscom (National Association of Software and Services Companies), and President and Chief Executive Officer, Genpact.
“The term ‘BPO’ has outlived its use. It doesn’t represent the full depth and capacity of the industry and the types of services it offers. Today, it is important to build full scale services and an ecosystem around processes. The industry requires a combination of technology and process expertise. India one day will be known for delivering process and re-engineering expertise. There are unprecedented growth opportunities in this,” said Bhasin, at the two-day Nasscom BPO Strategy Summit held in the city on Monday.
Revenue watch
The Indian IT-BPO revenue is set to grow by 33 per cent in the fiscal year 2008. Exports are expected to cross $40 billion, while the domestic market will clock over $23 billion.
The BPO industry alone is estimated to touch $12.5 billion in 2008 and has the potential to grow five-fold by 2012. The industry today employs two million people directly and indirect job creation is seven-eight million. But shortage of adequate employable manpower is still a cause for concern. “We need about 200,000 more employable graduates in the industry. We also need to fight attrition,” cautioned Bhasin.
All this can be done only if the country “puts its act together in education reforms and infrastructure initiatives,” urged Bhasin. A private-public partnership is required to achieve this, he added.
In his address, Ganesh Natarajan, Chairman, Nasscom, and Deputy Chairman and Chief Executive Officer, Zensar Technologies, listed out the BPO industry agenda on hand. The industry must look at harnessing opportunities in rural India, encourage reverse migration and adopt green IT practices, nurture creativity and provide opportunities for women to take up leadership roles.
Jainder Singh, Secretary, Department of Information Technology, Ministry of Communications and Information Technology, stressed the need to create investment regions and the importance of moving up the value chain to stay globally competitive.
Operation locations
At a press meet in the sidelines of the summit, Som Mittal, President, Nasscom, said the industry body has, in a study conducted along with AT Kearney, identified 50 potential locations in the country that are attractive centres for BPO operations.
Apart from the seven main centres of Bangalore, Chennai, Hyderabad, Pune, Mumbai, Kolkata and NCR, the study has identified 43 more centres with varying degrees of attractiveness and advantages. They include Ahmedabad, Bhubaneshwar, Chandigarh (Challengers); Aurangabad, Bhopal, Goa (Followers); and Allahabad, Dehradun and Patna (Aspirants).
Nasscom is in the process of talking to State Governments and other parties concerned to develop these regions as BPO centres of excellence, said Mittal.
It is also looking at international partners for the adoption of Green IT.
Indian BPO firms should head to hinterlands, says Karnik
BS Reporter / Chennai/ Hyderabad May 20, 2008, 4:00 IST
Rural India not only offers lower costs, but an abundant pool of highly-motivated talent. The future of India's BPO sector lies in moving more of its operations to rural India, according to former Nasscom president and member of IDG's Global Advisory Board Kiran Karnik.
"Indian companies have been setting up BPOs in various countries including Sri Lanka, Vietnam, China and Thailand. However, the biggest unexplored market is pretty much here in India. The future destination for the Indian BPO industry is within the country," he said.
Delivering his keynote address at the first national rural BPO conference organised by Byrraju Foundation, the NGO arm of Satyam Computer Services Limited, in Hyderabad on Friday, Karnik said Indian BPO companies were moving slowly towards rural areas in setting up facilities.
"Going ahead, we see challenges coming up in the form of competition as a result of the success that we have achieved in the IT and BPO industry, coupled with the already existing problems such as lack of talent and related issue of attrition. Clearly, there is a huge untapped talent in smaller towns and the industry should find ways and means to identify this and go where the talent is."
Stating that the Indian IT and BPO facilities are being set up as world-class ones, he said companies should look at small and cheaper facilities for services like data entry to tide over infrastructure and hiring costs.
"We should think of these rural BPO centres as the ones in Hyderabad or Delhi. Quality and standards have to be the same, and work at the same level of intensity using ‘appropriate' technology," he added.
Rural India not only offers lower costs, but an abundant pool of highly-motivated talent. The future of India's BPO sector lies in moving more of its operations to rural India, according to former Nasscom president and member of IDG's Global Advisory Board Kiran Karnik.
"Indian companies have been setting up BPOs in various countries including Sri Lanka, Vietnam, China and Thailand. However, the biggest unexplored market is pretty much here in India. The future destination for the Indian BPO industry is within the country," he said.
Delivering his keynote address at the first national rural BPO conference organised by Byrraju Foundation, the NGO arm of Satyam Computer Services Limited, in Hyderabad on Friday, Karnik said Indian BPO companies were moving slowly towards rural areas in setting up facilities.
"Going ahead, we see challenges coming up in the form of competition as a result of the success that we have achieved in the IT and BPO industry, coupled with the already existing problems such as lack of talent and related issue of attrition. Clearly, there is a huge untapped talent in smaller towns and the industry should find ways and means to identify this and go where the talent is."
Stating that the Indian IT and BPO facilities are being set up as world-class ones, he said companies should look at small and cheaper facilities for services like data entry to tide over infrastructure and hiring costs.
"We should think of these rural BPO centres as the ones in Hyderabad or Delhi. Quality and standards have to be the same, and work at the same level of intensity using ‘appropriate' technology," he added.
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