February - March 2004
India's Global Advantage: Business Process OutsourcingThe Business
Process Outsourcing ("BPO") industry encompasses all manner of customer
support (including call-centres), transaction processing, HR / accounting administration
and other back office functions carried out by the majority of large and medium
scale commercial enterprises.
BPO has grown in relevance over the past twenty years alongside the meteoric
growth of the computer and electronic technology industry. Initially populated
by information technology-based consultancy and services companies, in the past
fifteen years it has grown to include data management services, transaction processing
centres, and call centres. Today, BPO is an intrinsic part of the business model
within an array of industrial sectors including the financial, manufacturing,
retail, media and consumer products industries.
past ten years have witnessed the emergence of off-shore BPO services
driven largely by a significant potential for cost reduction through
the use of IT services and call centres located in low cost, high intellectual
capital regions such as India. Since the mid-nineties, international
organisations, particularly in the financial services sector such as
HSBC, Citigroup and American Express, and others such as General Electric,
have created substantial centres in India in order to gain from the cost
advantages offered by relocating their business processing operations
away from higher cost locations in the U.S. and Western Europe. This
period has also seen the tremendous growth of Indian IT services companies
such as Wipro, Infosys and Satyam, further building confidence in the
enormous benefits of their service offerings, high quality execution
combined with significant cost savings, among U.S. and Western European
companies. Indian companies have gained a reputation of dependability
and trust with these companies, particularly through work on critical
projects such as Y2K code remediation.
the Indian IT organisation, estimates that the BPO market in India
will grow from US$2.3 billion in fiscal 2003 to US$24 billion by 2008,
representing some 15% of the addressable global market. Several key
factors will drive this:
cost savings: an Ernst & Young study has shown that 36% of call-centre
operational costs can be saved by relocating to India; an industry
rule-of-thumb is that each call-centre employee based in India offers
savings of US$20,000.
quality, educated workforce: unlike the U.S. and Western Europe, the
vast majority of BPO employees in India possess a graduate degree.
pool of intellectual capital: India has a sizeable number of graduates
from its well-established university system available to the BPO industry.
time zone: this natural characteristic allows Indian BPO operations
to provide functionality to U.S. and European clients during inconvenient,
operationally expensive hours of the day.
Financial Services Opportunity
an example of the giant market potential of BPO, the financial services
industry represents a very large target market for this infant sector.
In a comprehensive Deloitte Research survey of offshore BPO in April
2003, the world's 100 largest financial-services companies have indicated
that they expect to transfer an estimated US$356 billion of their operations
and two million jobs offshore over the next five years in efforts to
reduce their costs significantly. Financial institutions expect to reduce
costs by some US$1.4 billion each by 2008 through relocating operations
to low-cost centres like India from developed economies in North America,
Europe and Asia.
shift of operations offshore already is now underway. Thirty per cent.
of the respondents currently have existing offshore operations and this
is expected to climb to 75 per cent. within two years, according to the
survey. It suggests that the firms achieve 39 percent cost savings from
moving operations to low-cost centres where salaries and other costs
are much lower.The study draws four principal conclusions:
offshore trend is driving a radical shift in the structure of the global
financial-services industry and this transformation is just beginning.
institutions that can utilise their existing offshore facilities expect
significant future savings because they leverage offshore scale and
scope; the challenge is achieving economies of scale.
aspiring to move offshore should move quickly to capture the benefits
of doing so, but the challenge is building capabilities quickly and
who don't move offshore risk being left behind because companies moving
offshore estimate future cost savings at about 45 per cent
survey shows that banks and insurance firms are transferring offshore
such functions as application development, coding and programming, accounting
and finance, operations, processing and administration, contact support
and call-centre operations.
decisions to go offshore are significant ones, the chief executive
officer, chief financial officer, chief information officer or chief
operating officer makes 90 per cent. of them. As the size and complexity
of the offshore moves increase, approval by the CEO is set to increase
to 45 per cent. from 20 per cent.
Research's estimate that US$356 billion in financial-services firms'
cost base will move offshore is based on a US$2.3 trillion cost base
for the top 100 institutions globally. The survey indicates that the
financial-services firms plan to shift, on average, 15 per cent. of their
global cost base offshore over the next five years. Using that same 15
per cent. assumption, two million positions of the thirteen million people
employed in the financial services sector of North American, the European
Union and Switzerland, and the Asian developed economies of Hong Kong,
Japan and Singapore will shift to low-cost offshore locations.
Keys to Successful Offshore BPO
its popularity, successful outsourcing to India is still difficult. While
the market has matured, telecommunications have improved and English
fluency in India has flourished, challenges still remain. Cultural issues
creep in, service-level expectations are set too high, transitional costs
can be foreboding, and ongoing relationship management is expensive and
labour-intensive. Most of the corporations that are using BPO agree that
outsourcing to India is a work in progress - a journey, rather than a
destination. International corporations are still strong believers in
the India phenomenon - and here are some of the key lessons for constructing
a sound offshore BPO model.
a BPO Strategy
vital for any organisation that's considering BPO to create an overarching
strategy for outsourcing to India. Taking the time to make such a strategy
clear is something that many companies might skip, but that would be
a mistake. There's much more to going offshore than sending out an request
for services to fifty BPO providers, selecting a vendor and then moving
processes offshore. Companies must go to extraordinary lengths to establish
goals and objectives first. The basic processes must be well-thought-out,
documented and understood by everyone before any work is transferred
addition, when creating an offshore BPO model, companies really need
to look at their own business model. For example where their IT departments
are currently located, what processes are key to competitive strategy
(and should therefore be kept internal) and then customise the BPO model
based on that analysis.
The Right BPO Provider
order to help key business areas accept the idea of outsourcing to India
and leverage the available scale, it's important to create a list of
preferred vendors and negotiate prices up front. Corporates must filter
the list of potential providers based not only on cost, but on key additional
criteria in the areas of service offerings and capabilities, price, management
practices and procedures, customer base, and business profile and strategy.
When deciding the right BPO provider, it's useful to give more weight
to service offerings and price than to other, less important criteria
such as business strategy and customer base.
is the case with almost all offshore work, the most critical phase is
the transition. The transition period requires bringing a few people
who will eventually be working offshore into the company's onshore site
to go through the process, get an understanding of it and create the
documentation that's required. This should include writing standard technical
documentation outlining such things as file-naming standards, and hardware
and software environments; creating a high-level project plan; identifying
the best onshore and offshore managers; and providing opportunities for
knowledge transfer such as job shadowing.
requires a robust quality assurance process. It's vital for companies
to invest in the outsourcing relationship on an ongoing basis in order
to catch mistakes and improve processes. It's one thing to have excellent
processes in place, but these also need to be constantly monitored and
BPO: A Sector With Huge Growth Prospects
on whom you ask, anywhere from 50 to 70 per cent. of all Fortune 500
companies are already outsourcing to India, and, according to Forrester
Research, the amount of work done there for U.S. and Western European
companies is expected to more than double this year. If corporations
are not already sending some development or maintenance work to Mumbai,
Gurgaon or Chennai, chances are that they are looking into it since the
offshore BPO model offers tantalising potential cost savings of up to
70 per cent. Much as Indian software and IT services have become a globally
accepted for high quality, India clearly has the potential to establish
herself as the leading provider of BPO services in the global economy.
Wadhera is an investment and business development consultant with longstanding
experience of BPO within the financial services industry. E-mail: Rwadhera@rwadhera.plus.com
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