Business Today

"BPO's $50-billion opportunity"

Will they be able to ramp up revenues five-fold to $50 billion by 2012? BT-Nasscom round table finds the answer.

     Print Edition: July 13, 2008

In just about a decade, the Indian BPO industry has grown from almost zero to $11 billion in annual revenues and a workforce of 700,000. Starting with lowend work of data entry and then voice-based customer contact, the industry now also does sophisticated finance and accounting, besides analytics and legal work. The demand for outsourced services from India has been so large that the Indian BPO industry has been growing at 35 per cent annually for the last three years. A recent Nasscom-Everest study shows that the “potentially addressable market” for Indian BPOs could be a staggering $220-280 billion by 2012.

The panellists (L-R): Akhil Gupta, Ananda Mukerji, Pramod Bhasin, Som Mittal, Raman Roy, R. Sridharan and Michel E. de Zeeuw
The panellists
However, BPOs in India now seem hobbled by a lack of sufficient trained workforce and rising employee costs, and inadequate infrastructure, including power and public transportation. So, what’s the road ahead for Indian BPOs? Will they be able to ramp up revenues five-fold to $50 billion by 2012—a possibility, according to the Nasscom-Everest report? To find answers to these, and more, questions, Business Today and Nasscom organised a round table on the sidelines of Nasscom’s recent BPO Strategy Summit held in Bangalore. The industry experts at the round table comprised: Pramod Bhasin, President & CEO, Genpact; Ananda Mukerji, MD& CEO, Firstsource; Raman Roy, MD, Quatrro BPO Solutions; Akhil Gupta, Senior Managing Director & Chairman, Blackstone India; Michel E. de Zeeuw, Vice President, Europe & Africa, Infosys BPO; and Som Mittal, President, Nasscom. The round table was moderated by BT’s R. Sridharan. Excerpts:

BT: Pramod, let me start with you. How does the climate look? The subprime crisis is not yet behind us, oil is on the boil, inflation is up across economies. Are these factors going to be a threat to or an opportunity for the BPO industry?

Pramod Bhasin, President & CEO, Genpact
Pramod Bhasin
Pramod Bhasin: I think medium to long term is going to be an opportunity, but there are going to be some turbulent air pockets in between. From time to time some individual companies, depending on their situation, may choose to postpone or delay or cancel a decision. But I think along with that happening there are always going to be two new companies who are going to say, ‘this is something I need to do to drive my cost and efficiency even higher’. And, I think those two will balance it out. Will they balance it out each quarter? I don’t know. I think the unknown element obviously is how long is it on for, and how deep is the recession?

BT: Ananda, you’ve made some acquisitions in the US and signed some fairly big outsourcing deals as well. Do you think the industry can maintain its 35 per cent growth rate?
Ananda Mukerji: There clearly are macroeconomic factors that today every industry is facing, every company and so our customers are facing it; to that extent there is going to be a turbulence in the short term. I think the fundamentals of the business are very strong. The proposition of cost and skills arbitrage provided by an offshore location like India continues to be strong. The growth can be sustained and there is more than enough demand for our services.

Ananda Mukerji, MD & CEO, Firstsource
Ananda Mukerji
BT: Raman, if you look at what’s happening in the stock market as far as the listed BPO companies are concerned, the stocks are down. So, it’s not all hunky dory. Do you think it’s going to get much harder for smaller BPOs to operate in this sort of an environment and the big boys will get bigger?
Raman Roy: I think when you say stocks are down, it is relative to where they were. Yes, the IPO market is already challenging. Is it going to continue for tomorrow morning? Yes, it is. But medium to long term, is there an opportunity for people to use IPO and exit? I think there definitely is. Some of the expectations may undergo a change, there is a little bit of fine-tuning to understand what the marketplace and what investors are looking for. It’s a global aspect of what is happening to the stock market. It’s not that Indian stocks or BPO stocks are impacted alone.

Akhil Gupta, Chairman, Blackstone India
Akhil Gupta
BT:Akhil, is it a good time for someone like you to be buying BPO companies or would you rather wait?
Akhil Gupta
: Next six months are a good time for us. In the past three months, we have worked harder than we have in the last three years, in terms of the kinds of deals that have come to us and the demand for private equity. The problem currently is that people have still benchmarked their expectations on the high-end of the cycle and that will change if the stock market remains where it is. And, my prediction is that there are few global cues to show the market will swing back to those levels. I think we have gone from a point when people took out the term ‘risk’ from their dictionary to a time now when everything is too risky. This kind of turmoil is the perfect market for private equity.

Bhasin: One other aspect that we shouldn’t forget is demographic change. Demographic change will have a lot to do with the development of this industry. This is a change we can’t reverse. It may not be immediate, but medium to long term it’s a massive change.

Som Mittal: I think this change is visible in North America, Europe and Japan, where there are not enough people to manage. This change will get more accentuated and we have started seeing it in at least these pockets.

Michel E. de Zeeuw VP, Europe & Africa, Infosys BPO
Michel E. de Zeeuw
BT:If you look at the BPO industry today, almost half of the business comes from customer interaction services. There is a lot of talk about how the industry needs to do much more of value-added work. What are the newer opportunities that the industry is capable of tapping given that even at seven lakh employees, it is already complaining of a lack of talent?
Bhasin: Frankly, it’s not a BPO industry problem, but an Indian industry problem. I don’t know if there is any sizeable company that has a lot of employees and can’t afford to be in the training business. All of us provide training in a variety of forms; we probably provide in our company 200-300 different courses, we have tie-ups with universities so that people can become Chartered Accountants or software programmers. I wish it wasn’t this way, I wish the government would fulfil its function of providing trained resources, but it is not right now. So, all of us have to build very large training departments. There is a benefit to that; the benefit is we learn how to manage processes even more efficiently. And, that is a unique skill Indian companies have built.

Som Mittal, President, Nasscom
Som Mittal
Mukerji: The industry is relatively young and its business model is yet evolving. We have to figure out what is the best way to deliver our services and where the best talent is located. We deliver high-class services despite all these hurdles. We are not yet reaching saturation as far as the market is concerned.

BT:Is going to Tier II really an option? Genpact has tried to go to Jaipur and smaller locations, others are working out of Pune. Is there sufficient talent coming out of Tier III cities?
Roy:
To your earlier question, there is a pyramid across industries across countries. There is a pyramid from top to bottom of the number of people at every level, every competency, every particular domain knowledge. If you talk of moving to a higher domain, which was your earlier question, the next layer of the pyramid has the ability to feed it but the hunger is not that large. If you say that you will require PhDs in Econometrics in the same number as you require guys who take calls and answer balance queries, that’s not true.

But the number that is needed with the training that Pramod and Ananda spoke about, I think that’s doable because that talent is there. We have been able to learn how to compress the training time, we have been able to learn how to get an Indian up to speed to an international level, and we will move into smaller towns and cities for that segment. But will we go to these smaller towns and set up a fancy analytical capability that requires PhDs? We will not.

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