BPO to KPO

Alright, so we had the edge when it came to the initial entry in the BPO market. Advantage India was based on pure play labor arbitrage. We were offering the requisite skills and services at far lower costs than that of our closest competitors and we are likely to maintain this edge over the US for another 18 years while offshoring low-cost IT services to India will be profitable for the next 30 years (according to a Cygnus report "QPAC, Indian ITeS 2006"?). But the race which we began is now being run, and run well by other players - newer players like China and Phillipines while utilizing the benefits of the Indian experience, are offering increasingly attractive options, with Indian wages rising every year. In fact, BPO services are a case in point where the input-output ratio is heavily skewed. Of all the sectors in the IT industry, it is ranked second in terms of number of employees (it was outstripped marginally only in the last financial year by IT services, before which it was the highest employer as can be seen from this NASSCOM report) but its contribution to the IT kitty, in terms of billion USD dollars was a disproportionate 9.5 as against an IT total of 47.8. Too much for too little, wouldn't you say?

The Cygnus report quoted above also mentions that KPO market (currently estimated at between US$1 billion and US$3 billion) is expected to reach US$17bn by 2010, of which India has the potential to net nearly US$12bn. With the global KPO market expected to grow at a CAGR of 46% as against the low end outsourcing, growing at the rate of 26%, we need to rethink our outsourcing business strategy. The picture is actually crystal clear. It is simply a question of implementation. Areas where we have lost out in the past include poor infrastructure, data security, quality, taxation issues and the need to move away from commoditized voice business. High attrition rates do not help much either.

However, we have had an edge according to a KPMG/IBEF study done earlier this year. When it comes to end-to-end solutions capability; a focus on stringent processes and quality of execution; our global delivery model (combination of onshore and offshore with an increasing offshore component); high-end, mission critical service capabilities and strong project management methodologies and expertise: these are of a reasonably competitive quality. An excellent end-of-year summing up of the negative and positive aspects of the Indian BPO scenario done by Stephanie Moore VP, Forrester Research can be found here. Amongst the many points that Moore made, she drew attention to the fact that increasingly as clients are looking for more and more in terms of innovation and optimization, Indian vendors are making efforts to be proactive in this direction rather than reacting to the requirements of the client. Encouraging in parts though the report is, there is a lot more that needs to be done.

With apologies to Robert Frost, "The woods are lovely, dark and deep" but I have no time to sleep.