Alarmist

A recent market study by Gartner has projected that by the time the current year is out, 70 per cent of the top 15 Indian-owned business process outsourcing (BPO) start-ups in the customer-facing, call-handling business will either be acquired, merged or marginalised.

As many large Indian operations are known to mostly handle customer calls, this raises uncertainties about the future of Indian BPO. The Gartner finding is primarily directed at Western outsourcers who have gone about the job somewhat hastily.

Eighty per cent have failed to reduce costs, 60 per cent have lost customers and discovered hidden costs in the process, and you can save 25-30 per cent of costs (no more) only if you do it right.

That means, do proper cost-benefit analysis and be focused in your aims before outsourcing. Also, take pains over the processes you outsource and after outsourcing keep devoting management time to harmonising in-house and outsourced work.

If this is the picture on outsourcing, what can be the prospects for offshoring, where all the risks of outsourcing get multiplied, with foreign accents thrown in for good measure? Consequently, what are the prospects for India, which sees itself as a prime host for offshored services?

First, the Gartner finding is about the call centre business. True, the leading Indian BPO operations mostly answer or make telephone calls, but two-thirds of the value in Indian BPO is accounted for by the captive businesses of the big international companies.

So if Indian-owned BPOs get the jitters, then that is not the end of the world for the BPO business in India. BPO in India did start with call handling, but a lot of water has flowed under the bridge in the last three years.

MNC captives in this business don't do much of call handling, and Indian-owned firms are trying to move up the value chain. Importantly, there is a mushrooming of niche players handling more and more complex processes. Industry sources say call handling now accounts for less than half of the BPO work done in India.

Further, the Gartner forecast is about Indian-owned "start-ups", that is those with venture capital funding. These have specific exit horizons of five to seven years. This automatically excludes the likes of Wipro Spectramind and Progeon, owned by the software majors.

Venture capital-funded Indian firms that are heavily into call handling have indeed been under pressure to play the price game and increase volumes so that those that have provided the initial rounds of funding can exit profitably.

This is because call handling is now a mature business and firms that wish to stay the course need volumes and big-ticket investment. But this is not the whole picture. If you take out the BPO operations owned by Indian majors, MNC captives and the likes of WNS (majority-owned by Warburg Pincus, which is a long-term player), then not more than six out of Nasscom's list of top 15 BPOs fit the description.

As for India's overall BPO performance, exports are growing at an annual rate of around 50 per cent and are likely to sustain a 40 per cent plus rate for the next five years.