When ICICI OneSource, the ICICI group's business process outsourcing (BPO) arm, was set up in the latter half of 2001, it moved into largely uncharted waters.
The BPO industry had not taken off as yet and there were few success stories to demonstrate what the industry calls "a third party provider" (that is, a company that offers BPO services not in house to other group companies but to companies with which it has no links) had to offer.
"We recognised the competitive advantage the country had to offer. Added to that was the familiarity of both the brand name and its understanding of the financial sector which ICICI brought in. Thus we decided to move in," explains the company's CEO and managing director Ananda Mukherji.
In mid-2002, ICICI OneSource acquired the Bangalore-based CustomerAsset its customer base and now ranks among the leading BPO vendors in the country. Business is booming, though Mukherji says the market today is far more competitive than what it used to be.
ICICI OneSource's experience illustrates the tectonic shift that's underway in the BPO industry. In its initial years, the industry was dominated by what it calls "captives" (that is, BPO companies set up to service the requirements of another foreign or domestic company).
Captives accounted for more than 90 per cent of the value of the mostly manpower-intensive and low skill work offshored to the country in early 2000. First movers like GE and British Airways had realised the benefits of offshoring work to India and hardly any third party BPO service provider existed.
That's changed. Notes Mukherji: "Over the last few years, credible third party BPO companies that can execute the work at the global delivery standards that leading companies want have come into existence."
Captives still account for over 65 per cent of the industry, but third party BPO companies are increasingly making their presence felt.
Indeed, GE Capital International Services (Gecis) president and CEO Pramod Bhasin and OfficeTiger Co-CEO Joseph Sigelman question the viability of captives.
For one, overseas companies don't want to be involved in the management of an offshore centre somewhere far away, in an environment they are not familiar with.
Secondly, the BPO business is not part of the core competence of most companies. Ergo, hand the work to a BPO company whose core competence it is.
Sigelman points out that work is offshored drive down costs "� and costs are not always driven down in the case of captives. He says that high infrastructure costs, including unutilised space and costly décor and other corporate overheads push up the individual headcount cost.
Moreover, captives require highly redundant and rugged physical infrastructure, which calls for substantial upfront investments of millions of dollars.
The National Association of Software and Service Companies has pointed out that internal clients often lack the freedom to negotiate pricing, something that clients of independent third party vendors are not hamstrung by.
As companies with captive BPO units begin to enforce stricter benchmarks for their BPOs, many will opt to outsource work to third party BPO companies.
Third party service providers can offer better management, process and people efficiencies. They are able to draw on their experiences with their range of customers.
"There is steady evolution of high-end industry-focused BPO services. They are becoming increasingly specialised and complex. There is a demand for contextual know-how and domain expertise to deliver solutions that provide value well beyond costs "� which is imperative to sustain a business like ours," says Sigelman.
A wider range of services are now outsourced and a number of BPO companies have, therefore, acquired skills in niche areas. That process will only accelerate.
"India," says Vaibhav Parikh of Nishit Desai & Associates, the legal firm, "has tapped only the tip of the iceberg. There are many more areas like the legal industry to be tapped."
Still, don't expect captive BPO companies to vanish overnight either. The current crop of captives are more focused on the higher-end value chain, on knowledge processes, on proprietary data management (parent companies don't want to share data with anybody else) and project management skills.
Atul Sharma, human resources director at Prudential Process Management Services, Prudential, UK's BPO firm, notes that Prudential started off with outsourcing to ICICI OneSource but set up its own BPO enterprise once it acquired confidence.
High end work is offshored to its captive BPO company in India and the work would not be offloaded to a third party BPO company. "We will continue to remain captive," declares Sharma.
"The captives will always exist; it's just that the independent third party business will grow faster," forecasts Bhasin.
