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Indian BPO Industry :

The Back Office to the World

White Paper Series

on
Outsourcing

Team DEssence

The

Current

recession

in

several

started with a low-end jobs gradually

economies has affected the bottom-line

moving to high-end processes.

of several companies. Outsourcing has

Following pyramid explains the value-

become a common tool for cutting the

chain in BPO sector.

costs thereby improving the bottom-line.

Availability of cheap labor in developing
countries fuelled the process. Over the
period, India has emerged as a natural
destination based on its attractiveness.
The story does not end here. The last

R&D

years SARs showed that it is not

advisable to put all eggs in one basket.

Research &
Analytics

Therefore, many other countries also

started attracting outsourcing.
According

to

Gartner

Study,

Accounting &
Transaction Processing

the

worldwide outsourcing market size is

estimated to be at US$ 143 Billion

Jobs involving customer

interaction like inbound and
outbound call centers

(2002). North America is the biggest

market contributing 63% followed by
Europe & Middle East with 28% and
Asia-Pacific region with 9% share.

Outsourcing Pyramid
Like every business, outsourcing has
also been a risky process for various
companies as it was not a tried and
tested formula. Therefore, over the
period, BPOs are climbing on the value
chain

ladder

generating

additional

sources for revenues. The outsourcing

What is driving the outsourcing?

Costs
Costs savings is the major reason
behind the outsourcing. Estimated cost
savings are huge. The labor is available
at 60-70% cheaper rate in developing
courtiers

like

India,

Philippines.

In

addition to this, they are highly skilled.

According to McKinsey, ITES market is

clerical and administrative tasks and

going to touch US $ 142 Billion in 2008.

jobs involving high-end skills like IT.

The current costs for these services are

The outsourcing industry is in the

at US$ 532 Billion. The difference of

evolving process. In the initial stages,

US$ 390 Billion is going to be net

only low-end jobs have been shifted.

savings for US economy. This means

Gradually, high-end jobs like research,

that outsourcing will greatly improve the

financial analysis, R&D are being out

bottom-line of the company thereby

sourced.

increasing the shareholders value.

Following are the various natures of
Apart from costs savings, there are
several other factors that might lead
companies

for

Finance & Accounting

o

Transaction Management

Following are some situations where

Billing

outsourcing can help

Tax Management

Want to increase the productivity

Financial Analysis

in mundane or boring jobs

Financial Reporting

go

outsourcing.

to

services that can be outsourced

Company wants to enter new

Customer Services

market, but necessity of full time

Inbound calls

staff in some functions is not

Outbound calls

known

Sales Support

Costs for bench staff are high

Telemarketing

Needs experts to handle specific

Email Support

jobs but can not afford full time

Market Survey

professionals

Wish to avoid union problems

Payment Services
o

Claims Processing

Credit Card Processing

Loan Processing

Outsourcing

Cheque processing

Mainly, there two kinds of jobs that can

Collections

Nature

of

Services

for

be outsourced: jobs that involve routine,

Human Resources
o

Payroll

Recruiting

Outsourcing is not limited to only few

Training

industries.

E-learning

opportunity to reduce costs through

Employee Leasing

outsourcing

Records Management

processes. However, there are some

Content Development

Every
of

industry
part

jobs

an
and

prominent industries which outsource

Engineering

major portion of jobs. These are as

Design

follows

Animation

Airlines, Travel & Transportation

R&D

Insurance

Graphics

Telecom

Architecture Consulting

Banking and Finance

Professional Services

Data Processing
o

Data processing

Decision Support

Major

Data Mining

Outsourcing

Market Research

India

Asset Management

Philippines

Destinations

China

Following chart shows market share of

Russia

different segments in BPO in India.

Eastern Europe

Mexico

South Africa

Indian BPO Market Share

42%

of

has

26%
2%
28%

2%

Content
Development
Remote
Education
Transcription
Services
Customer
Interaction
Back Office
Services

Source: Ernst & Young

for

India Advantage
Various

countries

popular

destination

have
for

become

outsourcing.

India has its own advantage which has

made it as a natural destination for

Major Industries for Outsourcing

outsourcing. The labor costs are at least

40 to 50 % cheaper compared to

developed countries. It is not the only

Market Size

low cost game for India. People are

According to Gartner study, Indian BPO

highly

skilled.

population

India

that

has

can

the

vast

market size is US$ 1.5 bn in 2001. It is a

speak

and

small

portion

of

entire

outsourcing

understand English. Every year, around

market. NASSCOM & Gartner predict

2.1 million graduates come out of

that once outsourcing climbs up the

schools. This ranges from humanitarian

value-chain,

graduates to high-class engineers.

outsourcing will be off shored. India has

Apart from labor skills, India is rapidly

emerged as a leading player in the

developing its infrastructure to support

outsourcing field. Hence, a large portion

highly skilled labors.

of

Following table shows Indias position

grabbed

with

outsourcing

NASSCOM Mckinsey study 2002, Indian

destinations. It clearly shows that India

BPO industry size would be worth US$

has several advantages over other

21 bn. Hence, the market offers a huge

countries.

opportunity that can be tapped.

respect

to

other

Country Capabilities
High

India

off

larger

shored
by

L o c a tio n
A ttra c tiv e n e s s
Low

Singapore

Australia
UK
ireland

Low Capabilities of Workers High

of

outsourcing
India.

the

will

be

According

to

Indian Outsourcing Opportunity

(US$ bn)

Philippines
Mexico

pie

Total BPO Market

Off shored BPO
Market
Indian BPO Market

2001#
127

2005#
234

2008*
310

6.4

35.1

62

1.5

9.5

21

source: NASSCOM Mckinsey Study 2002 and Gartner

# - Gartner Study
* - NASSCOM McKinsey Study

China

Source: Nasscom

Major Players
One major advantage is availability of

The BPO industry in India is not limited

players

end-to-end

to Indian companies. The trend was

services to clients. This reduces risks

started by MNCs. Most of the top

like

players are MNCs.

risk

who

can

towards

offer
losing

sensitive

information as clients are dealing with

only one company.

Following are the major players in the

sector. NASSCO has come up with a

industry.

report on these locations. The details

Major Players in Indian BPO

industry
Company
GECIS
Wipro
Spectramind

People
12000

Comments
Captive unit for GE

are as follows

9500

Daksh

6200

eServe
American
Express
ICICI One
Source
WNS
eFunds
Msource
EXLService

5500

Recently acquired
by IBM
Citigroup

4000

Captive

Highly Popular

Costly real estate

Poor Power

Mumbai

3900
3600
3500
2900
2700

highly

skilled

Costly manpower

Excellent

telecom

network
o

As discussed earlier, India offers several

advantages for outsourcing. Apart from
time differential advantage, Indian BPOs

can offer end-to-end services with a

of

Vast

manpower

India Opportunities

range

Source: CLSA

wide

NCR (New Delhi region)

offerings.

The

infrastructure required is also improving.

India can also offer the opportunity to

set up captive units of BPO. GE is a
very good example for this.

Therefore, the industry is very lucrative

for making an investment.

Locations

Efficient power supply

Bangalore
o

Indias IT Capital

High on image

Poor telecom network

Chennai
o

Good image

Reliable power

Hyderabad
o

Top in Policy initiatives

Cheap manpower

Pune
o

Poor power

One of the peaceful cities

Weak in policy initiatives

Ahmedabad

There are various locations in India that

High on policy initiatives

are

Poor telecom network

attracting

investments

in

BPO

Kochi
o
o

Animation

Among the lowest Real

Geographic information services

estate

Employee leasing or staffing

Cheap manpower
Also, big players in the industry will

Depending

upon

the

requirements,

provide end-to-end services. This does

players can choose a location from a

not mean that there is an end to smaller

wide array of options.

players. Smaller players will focus on

niche areas. That would be only survival

Future

tool for them. Hence, the structure of

Over the last few years, India has

Indian

entered in to High-end outsourcing jobs.

dramatically in future.

BPO

industry

will

change

Simultaneously, Indian companies have

embarked on to attracting new sectors

The industry is seeking a consolidation

for outsourcing thereby reducing the

at the top level while various small

risks. Hence, the future of Indian BPO

players

industry will be driven by these changes.

businesses.

are

mushrooming
The

acquisitions

their
of

Spectramind by Wipro and Daksh by

Following are the services that will drive

IBM has set the trend and increased the

the future growth in the BPO industry

pace of M & A activities in the industry.

Content services

Nevertheless, the industry offers wide

Design (Fashion & others)

areas of opportunities for setting up the

Market research

new ventures.

Research
Services

and

Knowledge

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DEssence Consulting 2004

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