Trends: Domestic BPO market in India - India Inc. zooming

Weekly news updates on trends and happenings in the Indian Outsourcing Industry

Domestic BPOs may not be as fashionable as their counterparts that service global clients. But they have several pluses – lower overheads (no accent training, catering etc), good margins and a business that’s subject to local industry situations. With India Inc. zooming ahead with plans and investments, this is one segment that’s set to boom too.

- Chillibreeze Business Research Team

Domestic BPOs see high demand

Domestic BPOs started as sweat shops — poor cousins to their international counterparts — almost living under their long shadows. Not any longer. Centres are now at par if not better than the international ones, complete with smart, wired cubicles, predictive dialers to call up the right customers and glass facade fronts. Employees are well paid, margins are at 18-20% and in some cases better than what companies get for international work.

Not surprising, since the last 12 months have seen an explosive demand for domestic BPOs, largely driven by faster GDP growth and by sectors such as telecom, banking, insurance, retail, healthcare, tourism and automobiles. Some global BPOs such as Aegis Communications Group, Firstsource Solutions, Infovision, Intelenet, IBM-Daksh are now aggressively looking at the local market for BPO business.

And what’s more today, almost 1,50,000-2,00,000 people work in domestic centres and this segment is growing at 35-40% a year. According to Nasscom, domestic BPO revenues almost doubled to $1.18 billion in 2006-07 compared to $600 million in 2005.

Take for instance, Essar group-promoted Aegis Communications Group, which has over 13,000 people, is doing both international and domestic BPO operations. Talking about the local opportunity Aparup Sengupta, CEO, Aegis India says: “We offer work in 14 languages from nine centres.

The gross margins from work in the domestic market ranges between 20-40% for tasks like customer care, analytics, market research and so on. Over the next 4-5 years will see massive growth in domestic business. The high GDP growth rates are also driving growth.” Aegis has over 40 customers for domestic business including Hutch-Vodafone.

Says Ananda Mukerji, CEO, FirstSource Solutions: “We have three customers including ICICI Bank and Hutch. At present 4% of our revenues come from the local market. We expect local BPO revenues to be 10% of our business in the next 12 months. Margins are better than or equal to what we get from international business.”

Besides, margins in local business can be better as overheads like transport expenses, accent training, catering are not there. Also, the sales effort cost just a fraction of what it costs to get an international client.

Demand is high as more and more companies are seeking third party BPO companies to service their customers. Companies like HSBC, American Express, Kotak Mahindra Bank, ICICI, LG, Whirlpool, Eureka Forbes and others are outsourcing their call centre work to specialists.

Says Aditya Gupta, president, Infovision Group: “I reckon that 2,00,000 people are working in local call centres. Almost 70% of our revenue comes from domestic work. About 80% of the business is voice related.” Infovision has 7,500 of its 8,500 staff working for domestic clients and it specialises in banking, insurance and FMCG sectors.

Another company, Sparsh BPO Services, was acquired by Intelenet Global Services from Spanco Telesystems. It has 11,000 staff with about 40 clients in India and a focus on travel, insurance, media, retail, telecom verticals.

However, domestic centres are not immune to the problems faced by the international BPOs — attrition and lack of good quality people. Some problems persist, despite the attractive growth figures.

July 06, 2007
Source: The Economic Times

Sundaram BPO arm buys 74% stake in PMC

Sundaram Business Services Ltd (SBS) has picked up 74 per cent stake in Professional Management Consultants (P) Ltd (PMC), a Chennai-based BPO, for an undisclosed sum. The remaining stake will be acquired in phased manner, according to Mr P.S. Raghavan, Executive Director and Head, SBS.

With this acquisition, SBS, the BPO arm of Sundaram Finance Ltd, will double its employee headcount to 1,600 and add 25,000 sq ft of space in Chennai. PMC, with revenues of Rs 7 crore, offers services to banking and financial service companies in India.

It will become a subsidiary of SBS but retain its name for some time. Its senior management team will come on the SBS board, Mr Raghavan said. SBS reported revenue of around Rs 17 crore for the fiscal ended March; the combined entity will see 40 per cent growth, he added.

Mr T.T. Srinivasaraghavan, Managing Director of Sundaram Finance, said: “This is in line with our stated intent of looking at inorganic growth to complement our existing capabilities. In PMC we saw both a business and a cultural fit and this acquisition will considerably strengthen our ability to offer services across the entire spectrum of the BFSI space.”

July 6, 2007
Source: The Hindu Businessline

SPi sets up new centre in Chennai

SPi, a Manila-based business process outsourcing company, has established a new centre in Chennai with a capacity to accommodate 1,110 employees.

The centre, located in the Guindy Thiru Vi Ka Industrial Estate, will house SPi’s publishing and healthcare businesses. Around 360 content specialists will be recruited in the next few months, according to Mr Ernest L. Cu, President and Chief Executive Officer, SPi.

The $160-million (Rs 650 crore) Philippine company provides editorial and content production solution for book publishers such as Harvard University Press and Oxford University Press.

In India, it has around 1,300 employees in Puducherry and New Delhi, and the number will increase to around 2,000 by the year-end, he told newspersons. Mr Cu said in the next 15 months SPi would migrate some of the work done at the company’s Chicago centre to Asian centres, including Chennai.

This will cause some job loss in Chicago by way of “natural attrition and layoffs.” At present, the Chicago centre has around 380 employees.

July 5, 2007
Source: The Hindu Businessline

Global healthcare BPO eyes buyouts in India

Global healthcare, legal and publishing business process outsourcing (BPO) company SPi is looking out for suitable acquisitions in India.

Ernest L Cu, president and chief executive officer of the Philippines-headquartered Spi, said the company has allocated $50 million for mergers and acquisitions.

The company is in talks with investment bankers and is considering several proposals, Cu said while addressing the media here on Wednesday.

According to Cu, SPi plans to move its medical billing work to India from the US. He said the setting up of new delivery centre in Chennai and the cost differential between the US and India has made the company favour shifting of medical billing business to Chennai in eight months. The business has the potential to create 150 new jobs.

SPi Technologies inaugurated its new 17,000 sq ft facility in the city on Wednesday. The 1,100-seat facility will house the company's publishing and healthcare business operations. The new centre will be the company's fourth in the country after Pondicherry, Coimbatore and New Delhi.

Cu said the Indian company would increase its headcount by 700 by the end of this year. In 2003, SPi through its wholly owned Indian subsidiary SPi Technologies Private Ltd acquired the Pondicherry-based Kolam Information Services Private Ltd, a book publishing BPO.

Two years later, it acquired the medical transcriptions business of KG Information Services and Technologies Private Ltd in Coimbatore.

July 4, 2007
Source: The Economic Times

Wages killing Bangalore BPOs?

Jobs once outsourced to India are now moving back to Silicon Valley, courtesy the increasingly expensive software pros in Bangalore.

The image search company Riya has pulled its research and engineering operations out of the country to consolidate in the US. The company behind visual shopping website Like.com had offices in both Bangalore and the US, however, the rising employee cost in Bangalore prompted this Silicon Valley start-up to save money by closing its Indian engineering centre and move the jobs back to California. In April, the company closed its Bangalore operations and consolidated operations back in the company's Silicon Valley headquarters.

According to a Gartner report, the steady demand for development talent is erasing some of the cost advantages that offshore development outfits have enjoyed. Wage increases for Indian engineers averaged 15 per cent from 2005 to 2006, compared with a 3 per cent average increase for US engineers, according to a recent Gartner report.

Munjal Shah, CEO of Riya predicts that other companies with similar offshore operations would also face problems as wages rose. "I do believe that other startups in Bangalore will see the same issue in 12-24 months," he said.

Shah noted that unlike Silicon Valley employees, employees in Bangalore did not value stock options highly, preferring an increase in cash wages instead.

Back in California, Riya sees a fall in headcount in a bid to keep the overall payroll costs the same. As according to Shah, “because the wages are still higher in the US the company couldn't bring everyone.”

July 03, 2007
Source: The Times Of India

R&D will drive engg offshore services growth’

A Nasscom study has reported that engineering offshore services will reach $40 billion by 2020. And several companies are vying to cater to a small piece of that big pie.

Mr Prasad Shetye, Vice-President and Head, Engineering Services, Patni, spoke to Business Line about its outlook on the industry and the future. He said that according to a study by Nasscom and Booz Allen Hamilton on Engineering Offhore Services the global engineering services market will reach $750 billion, of which about $10–$15 billion is offshored.

He added that India accounts for about 12 per cent of the total offshore market – $1.2 billion–$1.8 billion; this could go up to $40 billion by 2020 and an increase in India’s share to approximately 20 per cent –25 per cent. He said that the total offshored market is likely to grow to $150–$250 billion by that time.

This is equal to more than 2.5 lakh jobs for Indian engineers. India’s current share of offshored engineering services market is about 12 per cent and is relatively small compared to the information technology and business process outsourcing sectors.

Patni feels that majority of this outsourcing will happen in the R&D space. The aerospace and automotive sectors that have traditionally led the outsourcing bandwagon will continue to do so and retain a major chunk.

July 2, 2007
Source: The Hindu Businessline