Trend | Teleshopping | 02.06.2015
While India has traditionally been a prominent delivery location for BPO services, it is starting to emerge as a notable source geography as well. A rapidly growing economy, increased competition, and rising consumer expectations have led many Indian companies to adopt outsourcing as a viable means to gain operational efficiency and manage growth.
Though the I2I domestic BPO market is still dominated by voice-related services, in recent years General & Administrative Outsourcing (GAO) services such as Finance & Accounting Outsourcing (FAO), Human Resource Outsourcing (HRO), and Procurement Outsourcing (PO) have also gained notable traction. Recognizing the current growth and significant future potential, many leading global service providers are now creating targeted strategies to capture this untapped segment.
• Third-party outsourcing contracts; it does not include shared services or captives
• Contracts signed up to 2010 with geographic scope (both buyer location served and service provider delivery location) as India, and minimum contract duration of one year
• Buyers include both Indian companies and Indian entities of multinationals
• Process scope includes non-voice services in General & Administrative Outsourcing (GAO) segments, i.e., FAO, PO, and HRO services
• The Indian domestic outsourcing market is starting to exhibit strong growth. GAO is a small segment of the domestic outsourcing market but has become increasingly important in recent years
• The I2I GAO market is still at a nascent stage, compared to the global market for GAO services. However, the I2I GAO market witnessed a significant rise in contract activity in the last few years
• The market grew rapidly in recent years to reach a size of ~US$130 million in 2010, but at current penetration level the I2I GAO market represents a huge untapped potential
• While cost saving is a driver, the value proposition is driven more by the Indian companies’ need to stay competitive and manage rapid growth in the current fast growing economy
• Among the I2I GAO market segments, demand for FAO services has been the highest followed by PO and HRO
• Manufacturing, hi-tech & telecom, and financial services are the key industries driving adoption of I2I GAO services, both overall and in individual segments. Recent years have seen notable traction with other verticals as well, including travel & logistics, healthcare, and CPG & retail
• Both domestic Indian companies and Indian entities of multinationals drive the demand for I2I GAO services, with most belonging to small or mid-market segment
• While most of the I2I GAO contracts are long-term in nature, individual segments of the market reflect some variation. PO has the maximum number of short-term contracts (one to two years). Most of these are sourcing-focused engagements with an annual renewal structure
• FTE-based pricing is the most commonly observed model, however, other structures such as managed service fee, and transaction-based pricing appear dominant in some segments
• The service provider landscape in the I2I GAO segment comprises both global players and India-centric providers. While many global service providers have historically kept India at the heart of their delivery strategy, in recent years, most of them have also tapped India as a source market
• Among the global players, many providers have penetrated multiple segments in the GAO market. In contrast, most India-focused players are centered around specific GAO segments
• In the I2I FAO segment, IBM, Genpact, Intelenet, and Sutherland are the significant global players, while Osource is a notable India-focused provider
• Accenture has a strong presence in the I2I PO market, primarily attributed to the acquisition of Ariba’s sourcing services and BPO business
• In the HRO segment, AON-Hewitt, Accenture, and Wipro are the notable global players, while Peoplestrong and Talentpro are considerable names among India-focused providers
• Service providers, particularly global players, are deploying a variety of means to stay profitable in a market where arbitrage is not a key value driver
• Service providers have also expanded their delivery network beyond Tier-1 locations to sustain the requirements of the I2I BPO operational model
• The shared services concept has grown globally over the past three decades, with 85 percent of Fortune 100 companies capturing a variety of benefits from cost reduction and capability enhancement to global delivery and business transformation. India, however, has been less aggressive in adopting shared services. The domestic business process outsourcing (BPO) market contributes 0.16 percent of India's GDP, compared to global BPO revenues that are 0.26 percent of global GDP. This is the result of four factors:
Indian companies beyond the top 100 have annual revenues of less than $2 billion and have had a dominant share of business in India.
Indian companies have been growing rapidly and have had to evolve their business models. Executives thus believed that keeping activities within their business units would allow for better responsiveness to markets.
Service providers were focused on international business and did not see the domestic market as a priority, especially in a talent-constrained environment.
• Unclear value proposition.
The traditional value proposition for offshored shared services, such as labor arbitrage or access to differentiated talent, was weak in India.
• Going forward, shared services can become a significant force in India, led by a variety of factors across two areas:
• Greater adoption of the traditional shared services model
• Shared services are still emerging among Indian companies. While many large companies have begun to implement programs, coverage remains limited. This should change as companies build a greater global presence and a new generation of Indian conglomerates emerges.
• Proven proof-of-concept and an aggressive focus by mature service providers can trigger a much wider adoption of shared services.
• New business models and transformational contracts are emerging as organizations in a high-growth competitive market look to focus on their core business.
• Public services are showing signs of increased adoption of shared services in their efforts to deliver quality services in the face of cost and talent challenges. As organizations target rural markets for the next wave of growth, shared services can increase reach and help build capabilities, for example, by aggregating services across companies.
• Growth of new industries, including retail, and regulatory changes, such as for insurance, will drive greater adoption of shared services in select verticals.
• Finally, some industries are likely to witness shared utilities created by companies to increase scale and accelerate go-to-market, similar to capital market participants using a common clearing corporation.
• The opportunities for shared services are significant. Enterprise customers and service providers have some choices to make, and the government has a vital role in driving the growth of shared services as a user and enabler.
• Enterprise customers face clear choices, depending on their risk appetite and external requirements, and can choose the extent of adoption. Although some will continue adopting shared services on a piecemeal basis, proactive businesses will take the lead by adopting new business models and borrowing rather than building non-core and select core capabilities.
• Service providers will succeed only if they take a proactive role in building the domestic market by developing low-cost delivery models, solving problems more collaboratively, and using outcome-focused models more extensively.