The Indian BPO Industry: Surviving Odds

Wednesday, 04 March 2009

Even as the Indian BPO industry established strong growth trends over the last few years, the journey has not been easy. The industry encountered several hurdles like outsourcing backlash in the US, data security and fraud issues as well as rising cost pressures before gaining a strong foothold on the global outsourcing map. Now with Obama’s announcement to end tax breaks for companies that offshore jobs, the industry is again faced with a major concern. Globally, businesses are facing greater complexity in terms of increasing cost pressures, stricter regulatory compliance, reducing time-to-market and rising customer demands on the quality of products and services. Majority of the corporations have already invested a significant amount of time and money in offshoring over the last couple of years. However, the more pertinent question is – will the benefit of continued offshoring be more attractive than the additional taxes payable? The corporations in the US are subjected to 35% corporate tax on profits earned in the US. However, multinational companies have been deferring tax payment on the profits earned in their overseas subsidiaries until brought to the country. Large corporations are believed to have saved billions of dollars by deferring tax payment. From Indian to Global While the BPO industry is already facing increasing margin pressures given the economic slowdown, the announcement only adds to the woes of the service providers. Although there is lack of clarity on the implementation of the rules, the service providers will have to gear up for the future. There is no "perfect" cover for the service providers at this point, but we believe that outsourcing is already moving towards a "global supply chain". Indian service providersare already working to minimize their over-dependence on India and build a stronger global delivery. The trend towards rapid creation of delivery and marketing capacity across the world will ensure that large Indian providers will start resembling global tier-1 providers. Service providers are already considering increasing their onsite teams, expanding and setting up new offices within the US. So far, Indian outsourcing rode the value proposition of significant labor cost savings. Apart from the obvious cost saving, global sourcing benefited coporations in increasing efficiency, reducing time-to-market and increasing the overall competitive advantage to the offshorer. Service providers will aggressively innovate within their existing service offerings and delivery models like “shared services” centers, etc., in order to meet the challenge of margin pressures. In addition, companies will seriously look at other markets. The focus on the US market is already reducing and will further reduce with the opening up of new, untapped markets. Ending of tax breaks will surely hurt the ‘offshore attractiveness’. However, bringing back the (offshored) operations in-house will also add to costs. The corporations will have to weigh the cost of losing tax incentives vis-à-vis the benefits of offshoring which go beyond cost savings.

 

< Prev		Next >