BPO [Business Process Outsourcing] has been the latestmantrain India today. IT services companies are making a quick entry into the BPO space on the strength of their existing set of clients.
Business process outsourcing(BPO) is a form of outsourcing that involves the contracting of the operations and responsibilities of a 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.
Companies are moving their non-core business processes to outsource providers. BPO saves precious management time and resources and allows focus while building upon core competencies. Apart from call centers, functions outsourced span purchasing and disbursement, order entry, billing and collection, human resources administration, cash and investment management, tax compliance, internal audit, pay roll...the list gets longer everyday. If done well, BPO results in increasing shareholder value.
Benefits derived from BPO can be summarized as follows:
• Productivity Improvements
• Access to expertise
• Operational cost control
• Cost savings
• Improved accountability
• Improved HR
• Opportunity to focus on core business
Outsourcing is not new — it has been a popular management tool for a decade. One can safely say outsourcing has evolved: —
• 1960’s — time-sharing
• 1970’s — parts of IT operations
• 1980’s — entire IT operations
• 1990’s — alliances/tie-ups
• 2000’s — IT-enabled services (ITES)
India’s advantages as the BPO destination:-
India has one of the largest pools of low-cost English speaking scientific and technical talent. This makes India one of the obvious choices to outsource to. Dell, Sun Microsystems, LG, Ford, GE, Oracle all have announced plans to scale up their operations in India. Thus India’s advantages to outsource can be summarized as follows:-
· Availability of qualified personnel across various industrial fields.
· English speaking and IT savvy workforce providing a suitable platform for an outsourced call center.
· Indians are taking BPO jobs as a good career option.
· Vital government support for Call center & BPO services providing industry.
· Cost reduction up to 50%.
· Telecom infrastructure is improving to meet outsourced call center requirements.
· Infrastructure costs are low in comparison to other countries.
· Adherence to leading quality practices by various organizations and important aspect is certifications are given importance.
· Strong domestic IT services industries are coming up to support BPO industry.
Overview of the industry for the Past Decade.
According to a Report, India is at the forefront of the rapidly evolving Business Process Offshoring (BPO) market, having established itself as a “destination of choice.” The sector, that has grown manifold in size and matured in terms of service delivery capability and footprint over the past decade, is now at an inflexion point. Today, it faces a unique opportunity to enhance its role as a full-service, value-adding partner. There is significant headroom in the addressable BPO opportunity for buyers and providers, and there are sizeable untapped areas across a wide spectrum of segments. Also, the Indian BPO sector is favourably positioned to benefit from its established delivery capabilities, which influence buyers’ decision to expand their global sourcing exposure..
Roadmap 2012
The sector is estimated to aggregate revenues of USD 88.1 billion in FY2011, with the IT software and services sector (excluding hardware) accounting for USD 76.1 billion of revenues. During this period, direct employment is expected to reach nearly 2.5 million, an addition of 240,000 employees, while indirect job creation is estimated at 8.3 million. As a proportion of national GDP, the sector revenues have grown from 1.2 per cent in FY1998 to an estimated 6.4 per cent in FY 2011. Its share of total Indian exports (merchandise plus services) increased from less than 4 per cent in FY1998 to 26 per cent in FY2011.
A Study shows that going forward, the Indian BPO sector, at its current momentum, can reach around US$ 30 billion in export revenues by 2012. However, the sector can set itself a stretch target of US$ 50 billion (that is, approximately five times its present size) in export revenues by 2012. A five-fold growth in the Indian BPO market will add nearly 2.5 percent directly to India’s GDP from exports earnings and provide direct employment to about 2 million people. This will also spur growth in smaller Tier 2 and 3 cities to enable a six-fold growth in the number of delivery centers that will be required to support the enhanced target for the sector.
India’s IT-BPO market (including exports) could touch USD 285 billion in 2020 growing at a CAGR of 15 percent. The IT-BPO industry in India has achieved impressive growth rates over the past decade which currently stands at*USD 71.6 billion in 2009. A report release by KPMG and ASOCIO titled ‘Asia-Oceania Vision 2020: Enabling IT leadership through collaboration’ reveled that India the current market leader in global sourcing supply, serving approximately 51 percent of overall global sourcing demand is expected to retain its leadership position by 2020.
1. DEFINITION OF ITES:-
ITES stands for IT-enabled services. IT-enabled outsourcing can be defined as:
• Those outsourcing services that use information technology in the processing and delivery of the service.
• Services are typically delivered through a telecommunications or data network, or other electronic media
The term ITES can be defined as outsourcing of such processes that can be enabled with information technology and covers areas as diverse as finance, HR (human resource), administration, healthcare, telecommunication, manufacturing etc. IT Enabled services (ITES), also called web enabled services or remote services or Tele-working.
Following are the some of the IT Enabled Services:-
· Medical Transcription
· Document Processing Data Entry and Processing
· Data Warehousing
· IT Help Desk Services
· Application Development
· Enterprise Resource Planning
· Telecommunication Services
Sector Structure:-
According to the National Association of Software and Service Companies (NASSCOM), the apex body for software services in India, the revenue of the information technology sector has grown from 1.2 per cent of the gross domestic product (GDP) in 1997-98 to an estimated 6.4 per cent in FY 11-
2. THE KEY GROWTH DRIVERS OF THE INDIAN ITES-BPO EXPORTS:-
· Globalization, overseas competition and the business economics imperative
o Rapid growth of globalization has added to competitive pressures across geographic markets that were previously relatively isolated from overseas competition.
o The resulting impact on growth and profitability continues to push organizations towards more cost efficient business models.
· Global sourcing going main stream, significant senior business leadership vision and oversight and Quality of Services
o Having convincingly established proof-of-concept, global sourcing is now a key element of corporate boardroom agendas.
o As a part of mainstream business strategies, offshore/outsourcing initiatives are being accorded significant senior leadership oversight.
o Increasing emphasis on leveraging the model for greater strategic business impact; not restricted to functional support (IT, HR, etc.)
o 30% of companies worldwide who have reached Level 5 of Capability Maturity Model Integration (CMMI) are Indian IT/ITES firms.
o Nearly 75% of Fortune 500 and 50% of Global 2000 corporations source their technology related services from India with an increasing number of MNCs outlining their investment plans for setting up R&D operations in India.
o The other heartening feature has been the growing acceptance and adoption of the newly emerging People-Capability Maturity Model (People-CMM) by the Indian software industry. For a country like India, with its large assets in the form of skilled human resources, the relevance of People CMM needs no emphasis. A large number of Indian IT software and services companies have been quick to realize this and have either implemented or initiated these programs.
· India’s demonstrated superiority, sustained cost advantage and fundamentally powered value proposition
o Outsourcing to India has provided companies with significant benefits over the arbitrage in labour costs — through business process enhancements and improvements
o Indian vendors are expanding their service offerings, enabling customers to deepen their offshore engagements; the shift from low-end business processes to higher–value, knowledge–based processes are having a positive impact on the overall industry growth.
o Indian vendors have successfully built-up the scale of their operations to match the pace of increasing demand for these services — ensuring that client organizations do not have to settle for alternate options.
o In spite of the rising elements of cost, Indian offshore operations provide cost savings of 40-50 per cent and in spite of wage inflation averaging 10-15 per cent annually, companies are able to leverage declines in telecom and other overhead costs, productivity gains and economies of scale to sustain the cost arbitrage.
o Recent research has shown that even at current levels of suitability India has the largest pool of suitable offshore talent — accounting for 28 per cent of the total suitable pool available across all offshore destinations and outpacing the share of the next closest destination by a factor of 2.5
o The underlying factor highlighting India’s long-term attractiveness is its highly favorable demographic profile. With nearly 60 per cent of its population between the age of 15-59, and more than half below the age of 25, India will continue to have a significantly higher number of people in the productive (working) age group than in the dependent age group for at least next few decades. In contrast, countries including the US, Europe, Japan and China have a more aged population with dependency ratios likely to increase over the same period.
o The number of IT-ITES professionals employed in India has grown from 830,000 in FY 2003-04 to well over one million in FY 2004-05.At present over 2 million Professionals are employed This rapid growth in industry employment has been facilitated by the combination of two fundamental factors – a favorable demographic profile and a large, expansive and established network of academic infrastructure.
Global IT spendsare projected to grow at a steady rate of 10-11% per annum. The increase in global BPO spend will further give an impetus to the Indian ITESBPO Industry. Also, unpenetrated potential of G2000 corporations (late adopters) Will lead to demand deepening vertical and geographic market penetration of Offshore outsourcing. Indian IT-BPO grew by 12 per cent in FY2009 to reach USD 71.7 billion in aggregate revenue.
Key Highlights of the IT-BPO sector performance in FY 2008-09
IT Industry-Sector-wise break-up
3. THE BEST WAY OF RECEIVING DATA FOR PROCESSING IN ACCOUNTING/BOOK KEEPING TYPE OF BPO WORK:-
Majority of clients use QuickBooks. Few clients prefer to host the database server within their premises. In such cases both the client and the BPO provider need to have good amount of bandwidth [Client: 512K, vendor: dedicated 64k].
4. WHEN TO OUTSOURCE?
Outsourcing can make your business more productive and profitable - if you know when to take advantage of it. Consider these points when making your decision.
Outsourcing can be a strategic tool for making your business more productive and profitable - if you know when to take advantage of it. Consider the following criteria when deciding whether to outsource:
· The activity isn't central to generating profits or competitive success.
· The job is a routine one that wastes valuable time and energy.
· The task is a need that's only temporary or that recurs in cycles.
· It's less expensive to have someone else do it than to do it in-house.
· The activity can be done cheaper in-house, but drains resources that could be better used elsewhere.
· The skill required is so specialized that it's impractical to have a regular employee do it.
· The activity isn't one that people enjoy doing.
A List of common factors affecting decisions on outsourcing :
· Company's own technical competency and area of business.
· Size of the project.
· Cost/benefit analysis (feasibility study).
· Duration of the project.
· Type of project (new development/maintenance project).
· Management of the company, and it's beliefs.
· Availability of local trained manpower.
· Fear of not getting what you want... (Problems with getting competent and reliable service providers).
· Budget
Tips for finding and working with a company that's right for you:
Select a compatible company.Choose a company that understands your needs and can accommodate them. Devise a contract that allows you to adjust the terms of the agreement to suit unforeseen changes. An arrangement that's satisfactory now may not work in the future if the company expands or competition increases.
Establish the standards you expect.Outsourcing will mean the loss of direct control and supervision, so communicating the standards of performance you expect is a must. Outline these standards in the contract in detail, and check up on the company periodically to make sure that it's doing its job correctly.
Arrange for constant communication.Schedule regular meetings with your outsourcing people to stay informed and discuss the day-to-day problems they've encountered. By staying aware of what's going on, you can prevent potential problems and improve how your business operates.
Secure insurance for emergencies.Make sure you have a backup system in place in the event that the outsourcing company can't carry through. An accounting service, for example, should provide your company with a copy of backup records or store them in a separate location.
5. WHAT IS NEARSHORING?
The practice of sending outsourced functions of any sort, whether IT-based or business process positions, to a nearby country rather than choosing markets such as Malaysia that are thousands of miles away. For example, US nearshores the work to Canada and Mexico. The physical proximity of these “nearshore” countries is a big threat to India.
Nearshoring (also known as "nearshore outsourcing" and "nearshoring") means sourcing service activities to a foreign, lower-wage country that is relatively close in distance. Nearshoring is becoming competitive with outsourcing to farther areas since the recent rise of fuel costs. The customer expects to benefit from one or more of the following constructs of proximity: geographic, temporal, cultural, linguistic, economic, political, or historical linkages . The service work that is being sourced may be a business process or software development. As withoffshore, the term "nearshore" was originally used in the context of fishing and other ocean-based activities and later adapted by the business world. Nearshoring is a derivative of the business termoff shoring. Off shoring is a business activity that is complex and risky because it involves working with a foreign, distant organization. In contrast, nearshoring is understood to mean that the business has reduced the complexity and risk of offshoring.