Business Process Outsourcing

Destination India
Presented by

Chartered Accountants

November 2004
Services Globalisation: The New Paradigm

Digitization and Telecommunication enabling this

reality
2 November 2004
Diverse Objective of Outsourcing

Secondary Objective Primary Objective

Convert capital into expense

Better technology

Standardization
Expertise
Improve management focus

Low er labour cost

Manage capacity fluctuations
Business discipline & transparency
Share BPO revenues

0 3 6 9 12

3 November 2004
 India A Preferred BPO Destination
Size of circle indicates
quality of knowledge
workers
High Ireland

Location attractiveness Singapore Australia

Infrastructure
Communications UK
Other basic India
infrastructure
China
Country risks/FDI
incentives
Attractive incentive Philippines
Political
environment
Time zone
attractiveness
Mexico

Low
Low High
People attractiveness
Quality
Cost
Source: Mckinsey analysis Type of skills
English language
4 November 2004
India Advantage
Cost Quality Productivity

50-75 % cost Access to highly- Favourable time

reduction for qualified skill pool lag
offshore process
Established 24 x 7 service
Lower labour cost methodologies and
processes for better Sharper learning
performance curve effect

Adherence to leading
quality practices
Robust
Communication
facilities

5 November 2004
India Presence in BPO Sector
Transaction processing Finance and Accounting
-Tax processing -Billing
-Claims processing -Receivables reconciliation
-Cheque processing -Creditors reconciliation
-Financial accounting

BPO
- Transfer of business
process to external service
provider
- Enabled by IT and
Telecom

Content Development/ Customer Relation

Digitisation/ Transcription Management
-Data entry -Order processing/customer
-Data conversion fulfillment
-Medical transcription -Customer support
-Collection follow-up
-Telemarketing

6 November 2004
Key BPO Players in India
IT outsourcing companies
Specific verticals and
outsourcing skills
ACS, EDS, CSC

Software companies
Process specialists
Cost advantage and process
Knowledge of process
knowledge
ADP, Exhult, Convergys, Hewitt
Infosys, HCL, Mphasis, Satyam

BPO

Pure BPO vendors Captive service providers

Cost advantage and skilled Quality of services,
labour deliverability, Confidentiality
Wipro Spectramind, IBM-Daksh, GE, e-Serve, WNS, Dell
GTL

Consultants
Financial and accounting
background
Accenture, E&Y, PwC

7 November 2004
Growth Trends in India
18,000
Rs. Crore 16,380
US$ Million
16,000

14,000

11,300
12,000

10,000

8,000 7,100

6,000
4,250
3,600
4,000 2,900
2,400
1,495
2,000 930
565

0
1999-2000 2000-2001 2001-2002 2002-2003 2003-2004

8 November 2004
Limitations to growth of Indian BPO Industry
Controllable Factors
Tax on BPO units in India - increasing cost of service
o STP / EOU - Tax Holiday available upto financial year
2008-09 only
o SEZ - export income exempt from tax only for 10 years
from the commencement of business
- 100% for first five years and 50% for next 5 years
Uncertainty of Indian tax exposure to Foreign
Principal
Inadequate policies to curb Security Breach
High Employee Turnover perceived negatively

9 November 2004
 Limitations to growth of Indian BPO Industry
Uncontrollable Factors
US anti-outsourcing lobbying
o Impact of election of President Bush
China, Philippines, Malaysia, Ireland, etc.
Upcoming BPO Services destinations
Potential Measures to overcome limitations
Tax Administration to provide incentives that nurture
the industry
Transfer Pricing Guidelines may incorporate Safe
Harbour principle to determine Arms Length Price
(ALP)

10 November 2004
Recent BPO Circular
If no PE / Business Connection (BC) in India Foreign Entity not
liable to tax in India
If there exists Agency PE / BC in India
Scenario 1: ALP No further tax liability (?)
Scenario 2: < ALP
o Tax payable by the BPO unit on the differential amount
o Foreign service recipient could be burdened with tax on notional
income
Scenario 3: > ALP
o Indian BPO Unit can be denied tax benefit u/s. 10A / 10B on
excess amount received
Compliance requirements by foreign service recipient viz. filing
of return of income, assessment proceedings

Computation of ALP - walking on a tightrope

11 November 2004
Captive BPO Players - Taxation issues
Tax holiday under Indian tax law
Specified IT enabled services coupled with
condition of exports
Tax holiday benefits restricted by Tax Authorities in
case of geographical expansion of BPO units
o Considered as extension of existing unit
o Date of commencement of new unit for tax holiday
considered as that of the original BPO unit

12 November 2004
Thank You

13 November 2004