| The BPO Industry: 2010 and Beyond |
| Wednesday, 06 January 2010 | |||||||||||||||||||||||||||||||||||||||||||||||||||
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Over the last year, vendors worked on optimizing various administrative or marketing costs. The most obvious impact was on salary hikes, executive perks. Some of the companies resorted to cutting down the staff strength. To meet these challenges, vendors have been aggressively innovating (in operations and marketing) to improve productivity and effectively reach out to their customers. In 2010, we believe that the management attention will be focused not only on process improvement but also on innovative approaches in marketing. We have identified some of the key trends that will impact the industry going forward. Asia will be the bright star With the economic growth, a surging services sector, proliferation of technology in various sectors and increasing number of companies going through a global facelift, Asia is witnessing a rise in IT spend. Asian companies (excluding Japan) have been relatively slow in adopting technology as compared to other developed markets. However, governments in India and China are gradually relaxing the regulations. With privatization and increasing competition, companies in India and China are now undertaking massive computerization and investments in technology to compete with global players. Aggressive adoption of IT and centralization of operations will serve as a key enabler to IT outsourcing followed by BPO. Indian companies from high-growth sectors like telecom, retail, banking and financial services are amongst the leading buyers of IT services. The last one year has already seen several deals in the Indian market alone.
Large deals in India in 2009
Source: ValueNotes Research
We believe that increased buyer awareness and adoption of outsourcing across industry verticals will drive outsourcing. Large captives to fade away Over the last couple of years, large captive centers pulled out of their BPO business. Among the factors influencing the sell off; the key factor now is valuation. Given the current scenario where everybody is looking for liquidity in the market, availability of quick cash is an attractive proposition. Most companies in the banking and financial sector, which have been under tremendous financial pressure have found the sell out an attractive option.
Recent captive BPO deals
Source: ValueNotes Research
While not all captives will fade away, the larger captives are likely to sell off and/or shrink in size. One reason to retain a captive operation however is to protect confidential information and processes, so it is likely that some activities will remain in-house, while many of the other processes will go the third party way. There have been some action last year in terms of sell off (especially the banking sector); this trend of ‘corporations selling out their captive operations’ is likely to continue through 2010 till the global economy picks up pace. Emergence of ‘Large KPOs’ Large BPOs in the industry primarily cater to the large verticals like banking, financial services, insurance, manufacturing, pharma, etc. These verticals are also more matured in terms of outsourcing/offshoring. The larger companies in these verticals have been offshoring services; however the mid-market segment has not entirely opened up for a variety of reasons, including lack of awareness about offshoring, etc. While the larger service providers have already expanded their services portfolio, there is a new breed of KPOs that will move towards adding/integrating their KPO, BPO and IT offerings. These service providers will focus on certain segments/verticals that are underserved by the larger BPOs. We believe there will be steady emergence of large KPOs, which will gain traction in the next four to five years. Multi-service, multiple vertical and multiple markets With the slowdown in the global economy, service providers (especially those focused on the financial services sector) were affected by margin pressures. Service providers offering multiple services to multiple verticals were better positioned to weather the storm last year. Further, the heavy dependence on the US has hurt several large BPOs in the last two years. Service providers are making aggressive efforts to de-risk their business and diversify their client base. Large BPOs such as TCS and Infosys are expanding in Europe and in other geographies will cut their dependence on the US market. Vendors are maturing rapidly and have acquired the financial, managerial and operational capabilities to build and run centers at multiple locations around the world. Larger and mid-sized BPOs are embracing the "globalization" of delivery capacity. Some vendors have clearly laid down strategies to build capacity (onshore, offshore and nearshore) via acquisitions. We expect many more vendors to follow suit. From process innovation to marketing innovation In order to battle cost pressures, the BPO/KPO industry has been focusing on process innovation over the last 3 to 4 years. Enhancing productivity, shortening process cycle time, innovation in workflow management, developing technology, in-house software to bring down costs has been the focus for most BPOs and KPOs. While the focus on optimizing process efficiencies will continue, 2010 may mark a shift towards innovation approaches in marketing strategies. Rapid commoditization, entry of numerous players and competitive pressures now necessitate the need for innovation in marketing strategies (especially for the mid-sized players). For instance, the last couple of years have seen a rise in social media as an effective marketing tool, which is a new addition to the marketing methods/techniques. While increasing process efficiency for operations will continue to be the focus for almost all players, marketing strategy will take on a different meaning for most! |
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