K.J.

SOMAIYA INSTITUTE OF MANAGEMENT STUDIES AND RESEARCH

Emerging Trends in BPO Industry

Research Paper

Submitted to Prof. C.P.Joshi

15/09/2010

Radesh Shetty

PGDM-IB

050
Topic

Country attractiveness of BPO industry in Philippines, Mexico and China and steps India
should take to sustain its competitive advantage

Hypothesis:

India is likely to lose market share in offshore business process outsourcing (BPO), from
80% to about 55% by 2020

Abstract
The current recession in several economies has affected the bottom-line of several
companies. Outsourcing has become a common tool for cutting the 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 years SARs showed that it is not advisable to put all eggs in one
basket. Therefore, many other countries also started attracting outsourcing. According to
Gartner Study, the worldwide outsourcing market size is estimated to be at US$ 143 Billion.
North America is the biggest market contributing 63% followed by Europe & Middle East
with 28% and Asia-Pacific region with 9% share.
India, which was considered to be the hotspot for all BPO related activities, may soon lose its
sheen to other developing countries like China, Philippines and Malaysia. India was one of
the first countries to see the opportunity and start with BPO operations. Moreover, it also had
the strategic advantages such as skilled manpower, linguistic capabilities, low labour cost,
telecom connectivity etc. Daksh, EXL service, Vcustomers were some of the first BPO
companies who successfully staged themselves in the global BPO market. It was followed by
international BPO service providers like Convergys, Sitel, efunds and Sutherland
Technologies shifting base to India to exploit the advantages that India offered. Right now,
India leads the BPO business with a large market share. But all this is set to change soon as
other countries are waking up to the potential of the BPO business and starting their own
BPO firms. Experts forecast that India will remain one of the top 5 outsourcing destinations
but will lose the power that it enjoys now. There are many factors that have lead to this
situation. This research mainly deals with the reasons for the same along with the factors that
are responsible for making countries like Vietnam, Mexico , Philippines and Ireland attractive
destinations for BPO companies.

Methodology

27 peer reviewed articles have been referenced for this Research Paper. Two Literature
Reviews have been written, each referencing 6 articles, to study the subject and to
substantiate the hypothesis.

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This research paper will further elaborate on the secondary research and will cover the
following in detail:

1. Introduction to BPO
2. Various forms of BPO
3. SWOT analysis on Indian BPO sector
4. Major Players in BPO
5. Potential of BPO sector
6. Key Trends in the BPO Industry in 2009
7. Factors favoring Mexico , China and Philippines
8. Factors affecting Indian BPO industries
9. Key Action Points for India inorder to sustain the competitive advantage

The above flow will be used in substantiating the hypothesis.

Introduction to BPO
Business process outsourcing (BPO) is a subset of outsourcing that involves the contracting
of the operations and responsibilities of specific business functions (or processes) to a third-
party service provider. Originally, this was associated with manufacturing firms, such as Coca
Cola that outsourced large segments of its supply chain. In the contemporary context, it is
primarily used to refer to the outsourcing of services.BPO is typically categorized into back
office outsourcing - which includes internal business functions such as human resources or
finance and accounting, and front office outsourcing - which includes customer-related
services such as contact center services.

BPO that is contracted outside a company's country is called offshore outsourcing. BPO that
is contracted to a company's neighbouring (or nearby) country is called nearshore outsourcing.
Given the proximity of BPO to the information technology industry, it is also categorized as
an information technology enabled service or ITES. Knowledge process outsourcing (KPO)
and legal process outsourcing (LPO) are some of the sub-segments of business process
outsourcing industry.
India has revenues of 10.9 billion USD[2] from offshore BPO and 30 billion USD from IT and
total BPO (expected in FY 200). India thus has some 5-6% share of the total BPO Industry,
but a commanding 63% share of the offshore component. This 63% is a drop from the 70%
offshore share that India enjoyed last year, despite the industry growing 38% in India last
year, other locations like Eastern Europe, Philippines, Morocco, Kenya, Egypt and South
Africa have emerged to take a share of the market. China is also trying to grow from a very
small base in this industry. According to McKinsey, the global "addressable" BPO market is
worth $122 – $154 billion, of which: 35-40 retail banking, 25-35 insurance, 10-12
travel/hospitality, 10-12 auto, 8-10 telecoms, 8 pharma, 10-15 others and 20-25 is finance,
accounting and HR. Moreover, they estimate that 8% of that capacity was utilized as of 2009.

Nature of Services for Outsourcing

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Mainly, there two kinds of jobs that can be outsourced: jobs that involve routine, clerical and
administrative tasks and jobs involving high-end skills like IT. The outsourcing industry is in
the evolving process. In the initial stages, only low-end jobs have been shifted. Gradually,
high-end jobs like research, financial analysis, R&D are being outsourced. Following are the
various natures of services that can be outsourced

Finance & Accounting

o Transaction Management
o Billing
o Tax Management
o Financial Analysis
o Financial Reporting

Customer Services
o Inbound calls
o Outbound calls
o Sales Support
o Telemarketing
o Email Support
o Market Survey

Payment Services
o Claims Processing
o Credit Card Processing
o Loan Processing

Human Resources
o Payroll
o Recruiting
o Training
o E-learning
o Employee Leasing

Content Development
o Engineering
o Design
o Animation
oR&D
o Graphics
o Architecture Consulting

Data Processing
o Data processing
o Decision Support
o Data Mining
o Market Research

SWOT analysis on Indian BPO sector

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Strengths

 Highly skilled, English-speaking workforce.

 Abundant manpower
 Cheaper workforce than their Western counterparts. According to Nasscom, The wage
difference is as high as 70-80 percent when compared to their Western counterparts.
 Lower attrition rates than in the West.
 Dedicated workforce aiming at making a long-term career in the field.
 Round-the-clock advantage for Western companies due to the huge time difference.
 Lower response time with efficient and effective service.
 Operational excellence
 Conducive business environment

Weaknesses

 Recent months have seen a rise in the level of attrition rates among ITES workers who
are quitting their jobs to pursue higher studies. Of late workers have shown a tendency
not to pursue ITES as a full-time career.
 The cost of telecom and network infrastructure is much higher in India than in the US.
 Manpower shortage
 Local infrastructure
 Political opposition from developed countries

Opportunities

 To work closely with associations like Nasscom to portray India as the most favoured
ITES destination in the world.
 Indian ITES companies should work closely with Western governments and assuage
their concerns and issues.
 India can be branded as a quality ITES destination rather than a low-cost destination.
 $69 billion ITES business by 2010
 $97.5 billion IT (consulting, software solutions) market by 2010

Threats

 The anti-outsourcing legislation in the US state of New Jersey. Three more states in
the United States are planning legislation against outsourcing Connecticut, Missouri
and Wisconsin.
 Workers in British Telecom have protested against outsourcing of work to Indian BPO
companies.
 Other ITES destinations such as China, Philippines and South Africa could have an
edge on the cost factor.
 Slowdown of demand

Major Players in BPO industries

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Notwithstanding the controversies surrounding outsourcing, India continues to remain the
world's favourite BPO destination.

In spite of what the naysayers predict, there is little doubt that for a very long time, India will
continue to rule the BPO waves thanks to its pool of young, skilled population, proficiency in
English and low cost.

According to global management consulting firm A T Kearney's Global Services Location

Index (GSLI), India, China and Malaysia have a unique combination of talent, cost efficiency
and favourable business environment.

However, a fundamental shift in the index has taken place as the once strong Central
European nations have yielded ground to countries in Asia, the Middle East and North Africa.

The GSLI ranks the most attractive offshoring destinations based on financial attractiveness,
people and skills availability and business environment.

1. India

India has transformed the outsourcing industry in just a decade, staying ahead of all trends,
says the study. However, terrorism, corporate scandals like Satyam and currency fluctuations
have made some executives wary of India. While cost remains a major deciding factor, the
quality of labour is also gaining prominence.

2. China

China follows next at the 2nd position. Both India and China have a good majority of
educated young people with good labour cost opportunities.

China lags behind India in terms of industry size, lack of language capability, concern over
intellectual rights protection. China is an important player in the Asia-Pacific offshoring
sector.

3. Malaysia

Malaysia is the third best outsourcing destination. It offers a safe business environment, good
quality human capital at a low cost and strong government support, says the study.

4. Thailand

Thailand comes next on the list at the fourth position. Thailand and Indonesia share
similarities with the Philippines but lag behind in terms of language skills.

The offshoring industry in these countries can offer huge talent at a low cost, the study states.

5. Indonesia

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Indonesia is the 5th best outsourcing nation. It has the potential to compete with the
Philippines.

The survey further said the global financial crisis has slowed recent offshoring moves, the
percentage of companies' staff offshore may very well increase as a result of the crisis.

Layoffs at home are not translating to layoffs among offshore workers as companies seek to
reduce costs.

6. Egypt 

Egypt is the world's sixth best outsourcing destination. The currencies of Eygpt and Jordan are
closely linked to the dollar and their competitiveness is strengthened by a weak dollar.

Some other emerging offshoring destinations were Tunisia (17th), United Arab Emirates
(29th) and Morocco (30th).

7. Philippines 

The Philippines is the world's 7th best offshoring nation. It is also the second largest
offshoring destination, with a 15 per cent share of the global market.

It has many call centres serving the US market. It is now moving into IT and non-voice BPO
services

8.Chile 

Chile is the 8th best outsourcing destination and a leader in Latin America. Its favourable
business environment and political stability are the positive indicators.

The country is also set to join the Organisation for Economic Co-operation and Development
(OECD), a symbolic entry to the league of advanced economies, says the study.

9. Jordan 

Jordan is one of the top performers at the 9th position. Its expertise in information technology
has attracted many companies. It also has a favourable business environment.

10.Vietnam

Vietnam is a country to watch out, says the study. It has an offshoring industry focused on
information technology. Japanese companies have outsourced work to Vietnam for years.

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Potential of BPO Industry

The addressable market opportunity for BPO industry shows that traditional areas of focus
will continue to be large, but several other areas also have significant untapped potential for
buyers and providers alike.

• Market opportunity by verticals: There is a large market opportunity not only for
established industry verticals like Banking, Insurance and Manufacturing, but also for buyers
and providers in many other emerging verticals. The Banking & Capital Markets, Insurance9
and Manufacturing verticals together constitute almost 70 percent (US$ 160-190 billion) of
the total US$ 220-280 billion export market opportunity over the next five years. However,
emerging verticals such as Technology, Telecom and Travel & Transportation verticals also
provide opportunities in excess US$ 10 billion by 2012. Other verticals such as Media &
Publishing, Pharmaceuticals & Life Sciences,and Energy & Utilities too represent significant
untapped opportunity.

• Market opportunity by type of services: Another way to look at the total export market
opportunity is by type of services demanded — vertical-specific BPO services10 and
horizontal BPO services.11 Over the next five years, vertical-specific BPO services provide
larger market opportunity (60 percent; US$ 145-175 billion) compared to horizontal BPO
services. Horizontal BPO services, which currently account for a greater share of services
offshored to India, also provide a significant addressable market opportunity — a total of
US$ 75-105 billion spread across traditionally mature areas like CIS and F&A as well as
emerging segments like HR, Knowledge Services, and Procurement Services.

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• Market opportunity by nature of work: Buyers and providers need to expand their
relationships into middle-office and front-office services, which together represent an
opportunity in excess of US$ 100 billion by 2012. However, back-office processes are
expected to remain the largestopportunity areas over the next five years (providing more than
50 percent of the overall market opportunity). Back-office opportunities extend beyond
traditional SG&A (e.g., F&A, HR) functions; services such as transaction processing
activities in Banking and Capital Markets, investment operations in Capital Markets, supply
chain and logistics support for the Manufacturing, Retail, andTravel industries are some
examples of high-potential back-office services.

• Market opportunity by source geography: There is significant BPO opportunity for

buyers and providers across geographic markets. While North America is expected to
contribute roughly 70 percent of the total market opportunity for the Indian BPO industry,
both providers and buyers should increasingly look at exploiting opportunities in the UK,
Continental Europe and Asia Pacific. English-language based business processes from these
geographies represent a huge market opportunity of US$ 45-75 billion by 2012. Furthermore,
domestic Business Process Outsourcing market (in verticals such as, Banking, Retail,
Insurance, Media, Telecom, and Government) provides an additional US$ 15-20 billion
opportunity for the industry. It is possible for Indian BPO providers to maximise the available
market opportunity by developing a stronger nearshore presence, strengthening language and
cultural capabilities, and developing distinctive value propositions.

Key Trends witnessed in the BPO market in 2009 were

• Significant increase in capacity: The quantum of new investment in the industryincreased
by around US$ 300 million to reach US$ 800 million by the end of 2010.The increase in
capacity was equally divided between captive centers (subsidiaries of multinationals ñ such
as HSBC, Standard Chartered, AOL, Dell, Hewlett Packard) and Indian third party providers
such as Daksh, Wipro Spectramind, EXL, MsourcE, among others.

• Continued focus on Customer Care and Administration: According to preliminary

estimates made by NASSCOM, customer care and administration were the fastest growing
segments in the BPO space, with a projected growth of over 75percent in 2009- 10. The high
growth rate can be attributed to the presence of experienced third party vendors (who scaled
up operations) and entry of captive players. In addition, the availability of a fairly large talent
pool also attracted investors and customers alike to this segment.

• Continued dominance of US and UK markets: NASSCOM’s preliminary estimates

suggest that the English speaking geographies dominated export revenues of the Indian ITES
industry accounting for over 90 percent of the industry total.

• Enormous interest by potential customers: Not only did existing customers scale up
business (in terms of number of processes offshored or seats utilized or expansion by
captives); the sheer cost and productivity gains realized by them generated tremendous
interest among almost every significant Fortune 100 company to explore offshore ITES-BPO
from India.

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• Rapid maturity of third party vendors: Most leading third party vendors further
consolidated their leadership position by investing in infrastructure, quality
standards,employee training and re-skilling, expanding service line/process offerings,
investing in marketing front-ends and personnel with domain and process skills

• Increased presence of IT services companies: A large number of IT service companies

expanded their offerings to include ITES-BPO by creating their own capacities (Infosys,
Patni, Satyam, HCL, Cognizant, Syntel) or by acquiring ITES-BPOplayers (Wipro deal with
Spectramind).

• Emergence of several under-the-radar opportunities: The industry expanded its radar of

opportunities to new service lines such as package software implementation, System
Integration, R&D engineering and new management as new horizon forrobust growth.

• Geographical diversification of capacity: A number of players set up additional centers in

new cities drawn by attractive incentives offered by many state governments, and in an
attempt to diversify risk of running a single location centerand to take advantage of lower
labour costs in other cities

Changing customer behavior: A number of large customers prefer to outsource business to

multiple vendors and also set up a captive unit on their own. In some cases, they are asking
the vendor to build a center on a build-operate-transfer model, in which case the vendor
would grow the center to a certain size and then hand it over to the customer at the end of the
pre-determined period

Countries in Focus
Phillipines:

The BPO industry in the Philippines is generally divided into the following sectors: contact
centers, back office services, data transcription, animation, software development,
engineering development and game development. At the end of 2009, there were a total of
618 BPO companies in the Philippines. The contact center sector represents 31 percent of the
industry, with 191 companies.
The contact center sector is consist of inbound and outbound voice operation services for
sales, customer service and technical support, among others. Data transcription services (135
companies, 22%), and information technology services and software development (119
companies, 19%) were also well‐represented. There were 81 companies offering back office
services (sometimes referred to as knowledge process outsourcing or KPO), which refers to
services related to finance, accounting and human resource administration, representing a 13
percent share.
From only around 100,000 full‐time employees in 2004, the BPO industry expanded rapidly
to nearly 372,000 employees at the end of 2009. The bulk of BPO jobs are in the contact
center sector, which employed around 227,000 people in 2009. The second largest sector in
terms of employment in 2008 was the back office/KPO sector with nearly 69,000 employees.

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Total BPO employment grew by 24 percent between 2007 and 2008, whereas total
employment in the country grew by only 1.6 percent during the same period.

The disadvantages are low graduate turnout with only 400,000 graduates per annum which
puts it unfavourably with India, poor record on quality vis-a-vis India, and political instability
resulting in lack of uniformity in policies.

There is also an absence of multi-location facilities in Philippines and the country faces the
important issue of scaling up. The largest call centre in Philippines of AOL has only 800
people and the size of the industry there is only $100 million, the report noted. India's BPO
industry size is $2 billion.

Philippines enjoys advantages in being a former United States colony that helps in emulating
US culture and language, well developed IT skill set, third largest English speaking nation in
the world and large scale technical training programme.

Mexico:

International buyers of computer services increasingly trust Mexico-based IT service

providers with the complex work companies had previously preferred to keep in house.

BPO is growing at 15 percent, while outsourcing in general is growing at 9 percent. In

Mexico, all outsourcing is worth US$500 million and BPO is maybe US$90 million of that.

And BPO is leading the way in exports. There are US$90 million worth of IT services
exported, with BPO worth around US$50 million of that.

But Mexican companies are more reluctant than their U.S. counterparts to accept more
complex services from Mexicans.

There are only 107 million people in Mexico, which generates 65,000 IT professionals
annually, according to Martinez. Mexico has more than 2,000 IT companies but just three
Capability Maturity Model (CMM) Level 5 providers (the Software Engineering Institute’s
best ranking for software development processes) and another seven assessed at Levels 3 and
4.

So Mexico is promoting its differences. The number one selling point? Proximity. Sure, half
the CMM Level 5 development shops are located in India, but time differences can make
coordination—and travel—tricky. And Mexican BPO providers have an edge for the growing
U.S. Hispanic market.

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China

In China, BPO is now the fastest growing industry.  The Chinese government sees the
potential growth of global and domestic BPO and strongly supports the BPO business. China
has gained the ground of criteria such as financial attractiveness, people and skills, and
business environment.

Software development is one of its targets. In 2006, Chinas software industry achieved a sales
of 480 billion yuan, 23 percent higher than 2005. But, more importantly, with the rapid
development of telecom infrastructure, software development is no longer centralised.
 
With a huge talent pool and competitive price, China views business process outsourcing as
one of the potential growth sectors in the future. China marks as clear favorite as it has strong
presence of foreign companies. MNCs  such as Oracle, IBM, HP and NEC have set up
outsourcing centres in the country.

Even though language remains a big issue for China in venturing into English voice-based
BPO businesses, its geographic and cultural knowledge of Japan and South Korea has
provided China an edge over other competitors in these two markets.

When compare to India, which has the worlds major BPO player, are facing talent shortage
and higher attrition rate, experts believe that similar industries in China are expected to grow
very fast. In 2006, Chinas overseas BPO business was valued at about US$1.4 billion. It is
expected to reach US$5.5-6.3 billion by 2010.

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Conclusion:

India will remain one of the top 5 outsourcing destinations but will lose the power that it
enjoys now. There are many factors that have lead to this situation. Some of the main reasons
are:

 Low manpower cost: One of the main advantages India had over outsourcing
countries was the manpower cost factor. With countries like China and Philippines
jumping into the race, India is fast losing this advantage. These countries operate at
low manpower costs and as such, offer very low prices to their customers.
 Infrastructure: With increasing business and change in client requirements, the need
to update infrastructural facilities has increased. As of now, India does not have a
long-term plan to improve infrastructure whereas other countries have put strategic
thoughts to develop a well defined roadmap and to ensure that the infrastructure
needed to house such BPO firms are in place. Moreover, India’s poor infrastructure
adds to the business cost as Indian firms require a lot of redundancies such as power
and telecom backups.
 Government policies: The Indian government tax policies such as taxes on ESOPS,
rental space etc is making Indian companies less competitive and costlier when
compared to the new players in the field. In countries like China, Philippines, Srilanka
and South Africa governments are offering 10 to 15 year tax breaks and China even
offers income-tax holiday to its BPO employees.
 Workforce quality: The lack of government interest in ensuring an employable
workforce leaves a lot of loopholes that have to be filled by BPO companies through
incurring costs on training, which again makes the Indian BPO firms more expensive
than the other developing countries. The governments of countries like China and
Philippines are ready to invest money to train their workforce and make them
employable.
 Attrition: Problems like unusual working hours, stress, job insecurity etc have lead to
high attrition rates in the Indian BPO industry. Moreover, more and more people now
do not take a BPO career seriously. For most of the youngsters today, BPOs are a just
a place to earn money during their free time. As such, the industry is facing a major
shortage of manpower. Such situations force the outsourcing companies to look for
better pastures.

Apart from the points mentioned above, there are other problems such as time difference and
distance from the outsourcing countries that India is facing. Most of the new ventures
planned by other countries overcome these shortcomings and provide a less costly, reliable
option to the outsourcers. Unless the Indian government does something soon to handle the
situation, it won’t be long before we would have lost the position that we hold in the global
BPO segment.

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Key Action Points for sustaining competitive advantage for India

Over the next five years, right choices by stakeholders of the Indian BPO industry could
effect a fivefold growth. There is, however, a need for concerted and collaborative action by
various stakeholders to create the enabling ‘eco-system’ for future growth of the industry.
Efforts are required across eight action themes for the industry to realize its potential and to
maintain and accelerate its growth trajectory over the next five to ten years:

1. Protect India’s cost advantage to ensure that buyer interest, adoption and growth are
sustained Multiple levers can be used to protect Indian BPO industry’s cost-advantage. As a
first step,providers need to diversify their delivery footprint within India through creative and
innovative operating models. Movement to low-cost Tier- 2/3 cities is attractive despite lower
employability and higher management overheads. Our analysis shows that providers can
reduce total operating costs by 20-30 percent by moving to a low-cost city within India. By
doing this, the industry can effectively tap labour pools in several states across India.In
addition, providers will need to increase focus on cost rationalization and revenue de-risking
initiatives. These could involve initiatives to 1) increase resource utilization, 2) manage wage
costincreases, 3) optimize internal SG&A expenses, and 4) de-risk revenue stream by
diversifying the client base and adopting currency hedging strategies. The Government also
needs to maintain support to the industry through appropriate incentives and facilitate
creation of infrastructure to ensure parity with other competing nations. These incentives and
support mechanisms could include fiscal incentives (e.g., continuation of the tax benefits
under the STPI scheme beyond 2009, stamp duty exemptions), infrastructure incentives (e.g.,

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build infrastructure capacity ahead of demand in Tier- 2/3 cities through incentives to direct
and indirect participants and increased public-private partnerships) or even changes to labour
laws, promotion of SMEs12, and removal of some key telecom-related restrictions.

2. Create ‘BPO hubs’ with the enabling physical and social ‘eco-system’ to drive BPO-led
growth broader and deeper within India Government and industry will need to collaborate to
facilitate creation of BPO hubs in Tier- 2/3 cities within India. Creation of BPO hubs is
dependent on creation of an enabling eco-system required to successfully operate in Tier- 2/3
cities. This eco-system should include elements of physical (e.g., international connectivity,
mass-transport system, telecom connectivity, power, housing) as well as social (e.g.,
healthcare, education, shopping and entertainment, security, hotels) infrastructure. Further,
there may be an opportunity to shape the creation of infrastructure in a way that it is based on
skill availability and the domestic industry footprint within each BPO hub.

3. Increase employability and access untapped talent pools by creating greater linkages
between the current education system and the needs of the BPO industry, and facilitating the
development of BPO-specific education models .Initiatives related to education are required
to expand the employable talent pool in India. The industry needs to work more aggressively
with the Government to create greater linkage between the current education system and
requirements of the BPO industry. This can be done by 1) policy changes like liberalization
of higher education, 2) increased collaboration between industry and academic institutions to
take up initiatives such as introduction of BPO-specific curriculum and improving students’
access to funds for higher studies, 3) introducing coursework changes and teacher training at
the school level in accordance with future requirements of the BPO industry. There is also a
significant opportunity for private players to step in and create a BPO education industry.
Such a move should be based on creating longer-term training programs to improve
communication and other skills required by the BPO industry. Specific training programs
need to be developed to create several intermediate levels of skills and specialization
(between generalists and highly trained specialists), and to bring alternate talent pools (e.g.,
highschool graduates, educated housewives) into the BPO workforce.

4. Encourage the growth of domestic BPO market to enhance the competitiveness of Indian
industry, create additional employment, and facilitate development. In order to facilitate
growth of the domestic BPO market, specific regulatory barriers (e.g., cap on domestic
operations that can be handled from an existing center used for export businesses) need to be
removed. In addition, the value proposition of domestic BPO needs to be crystallized and
communicated to the buyer community to enable widespread adoption. To be successful in
the domestic market, providers will need to develop an end-to-end value proposition and
adopt innovative delivery strategies.

5. ‘Up-shift’ the third-party and captive value proposition to effectively deliver against
changing buyer expectations. Providers will need to step up to fulfill evolving buyer
expectations regarding optimization and transformational value creation. Our extensive
interaction with buyers indicates that one of the key initiatives required would be providers
engaging with buyers early in the decision-making process. Providers need to become a part
of the decision-making process by developing consulting capabilities, creating strategic
account-management capabilities, and tailoring their value proposition based on buyer
maturity and requirements. Providers will also need to create an improved value-added
approach by investing in people, process, and technology-related initiatives. The final aspect
of up-shifting the value proposition would be for buyers and providers to create win-win

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economics by adopting pricing metrics related to process output or business drivers and
linking them to business performance metrics. Such a move will incentivize providers to
develop into value adding partners.

6. Shape an ‘integrator’ role for the Indian BPO industry in the emerging global services
supply chain. As large, mature buyer organizations push offshoring lever harder, a global
services supplychain is emerging. There are many examples of multi-location global sourcing
networks created through use of captives and third-party vendors. While India is often the
nerve center of such networks, other offshore locations offer unique advantages that may not
be replicable in India(e.g., Philippines has superior English language and soft skills for
customer service operations especially for US buyers, Eastern Europe offers language and
time-zone advantages for European buyers). The Indian BPO industry, therefore, needs to
aggressively take on a more proactive and shaping role in the global sourcing space.
Providers need to continue to expand theirdelivery network to other low-cost geographies to
take advantage of the leverage points offered by these destinations and expand their service
delivery footprint onshore to take end-to-end ownership of service delivery. Providers could
also identify opportunities to create alliances (mergers, acquisitions, subcontracting) with
overseas players to develop compelling propositions for buyers. The industry should
collaborate and develop alliances with industry bodies in other competing destinations in
order to create an enabling environment for acquiring specialized skills from other emerging
locations (e.g., European language skills from providers in Eastern Europe).

7. Communicate the true performance and potential of the industry to a broader set of
stakeholders, including buyers, employees and Government. The Indian BPO industry needs
to clearly communicate its value proposition to buyers, current and potential employees,
influencers, and Government. Specific outreach programs need to be implemented to increase
interaction with buyers in order to highlight the growing maturity of service offerings and
provide perspectives on perceptions regarding political, economic and social risks. The
industry should also partner actively with media to facilitate greater and more balanced
communication to the external world through proactive coverage of achievements and
potential of the BPO industry. Current and future employees, as well as influencers such as
parents of young graduates, form a very critical group of stakeholders for the BPO industry.
Individual providers as well as the industry need to promote the attractiveness of BPO as a
career option by highlighting exceptional firm-level initiatives for employee development and
facilitating information-exchangeforums / mass outreach programs at various colleges.

8. Help buyers embrace the overall opportunity of India’s BPO industry in a more meaningful
way. Buyer organizations will need to re-orient their global sourcing decision-making process
in order to tap the significant opportunity presented by the Indian BPO industry. They need to
adopt a more holistic view of global sourcing opportunities, engage a larger internal
stakeholder group, and develop a comprehensive global sourcing plan along with an enabling
organization model.In addition, buyers also need to develop sourcing and engagement models
with providers that foster integration, optimization and innovation. The traditional notion of
what Business Process Offshoring could deliver for buyers is gradually giving way to a
transformation-driven outlook. These changes present significant opportunities for the Indian
BPO industry but, at the same time, also necessitate conscious decision-making by all
stakeholders. We believe that the eight key action themes outlined in this report will enable
the Indian BPO industry to ride the next wave of growth. However, effective implementation
will require continuous collaboration between key stakeholders in the industry, including the
Government

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