The Indian BPO industry continues to chart strong growth at 33% for FY 2007-08, with employment crossing 700,000 during the financial year FY08. Indian BPO revenues grew to $10.9 b in FY 2007-08 from $8.4 b in FY 2006-07.

 Over the last couple of years, the industry has grown at a frenetic pace. However, this year (especially the second half of this year) has been challenging for several service providers due to the uncertain economic conditions.

Currently, BPOs earn a large share of their revenues from the US market. The US-based buyers make up for a significant portion (over 60%) of the total BPO & KPO contracts. However, with the slowdown in the US economy, BPOs are looking at alternate geographies like Europe, Australia and Asia Pacific.
In this issue, ValueNotes looks back at some of the significant events that impacted the BPO industry in 2008.

Landmark Deals

While the debate on the US slowdown negatively impacting the Indian outsourcing industry continues, some service providers aggressively acquired overseas companies. With slowdown in the US economy bringing down the valuations of BPOs, acquisitions by the Indian BPOs gained traction. Some of the significant deals include:

• TCS acquired Citigroup's captive arm CGSL (CitiGlobal Services Ltd) for $505 m. With this acquisition, TCS BPO has become one of the frontrunners in the BPO industry and Citigroup has got liquidity at a time when the global economy is under tremendous pressure, battling the financial crisis.
• WNS acquired UK-based Aviva Global Services for $228 m. The transaction strengthened the position of WNS and is expected to improve the company's service offerings
• Aegis BPO acquired PeopleSupport for $250 m. The acquisition will allow Aegis BPO to deliver onshore, nearshore, and offshore BPO services or a combination of customized solutions.
• Integreon Managed Solutions acquired Datum Legal, a US-based litigation support and electronic data discovery firm.
• Private equity firm Providence Equity Partners and Philippines based Ayala partnered to acquire eTelecare Global Solutions, a BPO which offers voice and non-voice services for $290 m.
• HP acquired EDS, which provides a wide array of BPO services for $13.9 b. Earlier EDS had acquired MphasiS BPO. This acquisition will enable the company to offer a combination of services comprising hardware, software and BPO services.
• Serco acquires InfoVision for $75 m. The UK based Serco Group has acquired Gurgaon-based BPO InfoVision (one of the leading BPOs serving the domestic market) for $75 m. With this acquisition, Serco Group will make its footprint in India as well as offer services in the BPO vertical.

Significant Contracts

• Wipro Infotech was awarded a 9-year outsourcing contract by Aircel, a telecom company owned by Maxis Communications, Malaysia. The contract is valued at $450-$600 million. Wipro will support IT infrastructure for Aircel in India.
• Tech Mahindra has won a 5-year outsourcing contract from BT worth $350 m. It will offer support services and application maintenance for BT’s business and BSS, OSS applications and platforms. The company is considering acquisitions in Europe and Asia.
• Max New York Life (MNYL) signed a 10 year IT outsourcing contract valued at $450 m with IBM India. As per the contract, IBM will provide complete backend IT infrastructure for the company. In addition, IBM would provide technology to offer life insurance policies with minimum documentation that would reach the semi urban and rural areas.
• Prudential signed a BPO contract worth $1.4 b with Capita. As per the deal around 3000 Prudential employees will move to Capita. The contract is valid for a 15-year term and involves offering life and pension sales and administration services.

Despite these large deals and contracts, the industry is faced with certain concerns.

Outsourcing to companies located overseas was a hotly debated topic during US Presidential election campaign. Obama, during his campaign, made statements of cutting down outsourcing so as to create more jobs in the ailing US economy.

Further, the 26/11 Mumbai terror attacks have also raised questions on India as a favorable outsourcing destination. BPOs are already looking at other destinations like Malaysia, Philippines and China for new delivery centers. Many contracts are over a period of 2-5 years and these attacks may not impact the ITES-BPO industry significantly.

While the BPO service providers are already reeling under the negative impact from a worsening economic conditions, could they be in for more trouble as a new anti-outsourcing backlash gathers momentum in the US?

Watch out for the next issue on "BPO 2009: The Year Ahead".