BPO's next phase

Many recent headlines on the business process outsourcing (BPO) sector have been singing a dirge. The US backlash, contract delays, high employee attrition rates and question marks over quality at some call centres must have made many wonder if BPO's sunrise status was overblown.

But when IBM plonks something like $150 million on the table to buy the BPO firm Daksh, the song has changed. The IBM decision reaffirms that there is sound economic logic to outsourcing, never mind the US election-eve rhetoric.

The timing of the deal "" coming as it does just when the anti-outsourcing wave in the US is cresting "" sends a powerful message of its own. But the Daksh deal is more than just a vote of confidence in BPO. It signals an inflection point and a coming of age in this business.

Quite clearly, the business is growing out of the entrepreneur mode. In any new business, entrepreneurs are the ones to spot business potential early, but once the economic viability of an idea is established and future growth needs big investment, very few venture-funded entrepreneurs have the staying power to hang on. The BPO business currently needs bigger players to bankroll it.

Secondly, the raison d'etre of BPO is changing. From being a mere cost-saving operation, BPO is beginning to move to the core of the value chain.

Increasingly, companies are looking for outsourcing partners who not only have the ability to cut costs, but also add value to their business processes.

A call centre company may start by merely handling inbound calls from customers abroad but over time, as it gets familiar with the business, it can start handling customer data and business intelligence in ways that could be advantageous to the client company abroad.

At this level of BPO involvement, clients may also feel more comfortable with familiar names "" IBM, Accenture, et al "" apart from well-established Indian software companies like Infosys and Wipro. For the latter, the addition of BPO to the armoury helps them bundle a complete package of services to customers.

IBM's acquisition of Daksh, Wipro's takeover of Spectramind and the Aditya Birla group's purchase of TransWorks underscore once again the importance of scale and size in this business.

The roadmap for BPO in India is now clear. Over the next couple of years, most of the remaining independent BPO companies will be acquired by domestic and international firms. This transition is both vital and important because the industry has to improve the quality of its services and build a long-term competitive advantage.

The focus clearly should be on hiring quality staff, training them continuously, and delivering unbeatable services. To avoid over-dependence on the US market, Indian firms also need to look at Europe, Japan, the affluent parts of Asia and Latin America. What's missing are language skills in French, German, Spanish, Japanese and Chinese.

When China realised that India had beaten it to the US market in software and BPO due to its English advantage, it began a programme to improve English skills in the country. India now needs to do the same in various languages.

Both the government and top-notch companies need to invest in linguistic skills in a big, big way if India is to retain its edge in the BPO business.