Analyst say: move up the value chain to keep India dominating the KPO market

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

Even as studies predict mega competition for India from other emerging outsourcing countries, others predict that India will move up the value chain to dominate the global KPO market by 2011. The lesson here for outsourcing firms is clear – scale up and value add or face competition from overseas.

- Chillibreeze Business Research Team

Citi BPO sale gathers pace, Genpact leads the race

Hard bargaining is under way for Citigroup’s BPO, earlier known as e-Serve. Sources say that the list of contenders has been narrowed down to third-party BPOs such as Firstsource and private equity players such as 3I and Blackstone with the Gurgaon-based Genpact reportedly leading the race.

A clearer picture is expected to emerge post Genpact’s listing on the NYSE which is expected to be sometime in the first week of August.

As reported by ET earlier, Genpact’s synergies with Citi’s BPO fit well due to its domain and operational expertise in the financial services space. Also, Blackstone and Firstsource are strong contenders. After having acquired the Mumbai-based BPO Intelenet, Blackstone had said that it would become its vehicle for future acquisitions in the BPO space in India.

Interestingly, valuations still continue to be high for Citi’s BPO, after big players such as Infosys, IBM TCS backed out citing expensive valuations.

But with Citi’s exit eminent and about to fetch nearly two-and-a-half times the valuation for its captive BPO (for an expected price of $700 million), it would by far be the most expensive deal for any Indian BPO. Most captives, be it Barclays and HDFC selling Intelenet or Deutsche Bank hiving off its captive to HCL, have got a valuation as high as two times the sales.

July 27, 2007
Source: The Economic Times

Secova expects $100 mn turnover by '10

Secova eServices, global player in Human Resources Outsourcing services, expects to touch $100 million turnover by 2010, according to the company's top official.

"The Benefits Administration Space is about $12 billion in the US, growing at 10 per cent per annum. We are into this space, offering best shore services from India and the US," Venkat Tadanki, CEO, Secova told media.

"We are well positioned to become a big player in the next two years. This is such a huge market and we have a great opportunity. We expect to grow 50 per cent year on year and by 2010, we hope to reach $100 million," he said. Tadanki said the company planned to increase headcount from 300 currently to about 450-500 in the next 12 months. He said the company's operations from the US and India were currently about 50 per cent each.

The company offers Benefits Administration services to companies in the US. Benefits Administration consists of health and welfare benefits of employees.

July 26, 2007
Source: The Economic Times

IonIdea developing Conformia’s drug discovery software

Outsourcing of software for drug discovery is gaining momentum in the country. India will soon become the second largest FDA-approved drug manufacturing geography in the world.

Software that will capture, store and access a wide range of data on quality of raw materials and chemicals used; obtain the expiry date; determine formulation of delivery mechanism to the body: be it in the form of capsules, tablets, injections, liquid medicines or syrup; deciding the colour, shade, shape, taste and flavour of the drug; its consistency; control over manufacturing processes; its efficacy in curing diseases and its side effects, etc., are being developed, run and maintained by Indian software firms.

One such firm is the Bangalore-based IonIdea, whose 104 engineers are working on SUMS (Scale up management solutions) software developed by the US-based Conformia. This software will help bring down the development time and enhance the scale up procedure from the current seven years to say three years.

July 25, 2007
Source: The Hindu Businessline

BPOs too outsource processes!

Faced with rising operational costs and higher-than-the-industry attrition rates, captive centres in India are turning to third-party BPOs/vendors to manage their centres and take over the less strategic work, while retaining control over some of the key functions.

Smaller captives, with up to 200-250 employees, are learnt to have approached third-party BPOs for a tie-up of this kind. Wipro is learnt to be looking at deals in this area. WNS Global Services is also in discussions with captives for taking over operations.

A recent Forrester Research report pointed out that 60% of captives in India are currently struggling due to high operational costs, skyrocketing attrition rates and lack of management support. The report also said that about 20% of existing captives are expected to adopt a hybrid approach by using third parties for less critical work and keeping more strategic work to themselves. Attrition rates for captives hover around 40%, against the industry’s 30-35%.

ExlService Holdings is also looking at similar opportunities, especially those with expertise in finance & accounting. For product engineering and IT services firm Infogain, it’s captives with up to 100 employees that it’s eyeing.

July 24, 2007
Source: The Economic Times

India to dominate global KPO mkt

India, already known as the back office of the world, will account for two-third of the global Knowledge Process Offshoring (KPO) segment that could create up to 1.8 lakh new jobs here by 2011, a new study has said.

The worldwide KPO market is expected to grow to 16.7 billion dollar in revenues by 2010-2011 at an annual growth rate of 39 per cent. Of this, India would account for 11.2 billion dollars, according to the study by business research and analytics firm Evalueserve.

The industry would employ about 3.5 lakh professionals by March 2011 globally. This includes nearly 2.55 lakh in India, where only about 75,400 people are currently employed.

According to Evalueserve, the KPO industry in India had only 9,000 billable professionals in India, generating revenue of 260 million dollars during 2000-01. This number has grown to 75,400 by 2006-07 with 3.05 billion dollars in revenue at an annual growth rate of 51 per cent.

The anticipated success in KPO comes after the success of Business Process Outsourcing (BPO) in the country, which accounts for revenues of 15.8 billion dollar in 2006-07, a jump from just 7.7 billion dollar in 2003-04.

It is quite likely that companies -- both with their own captives and those using third-party vendors -- may use a "hub and spoke" model in which a provider in India may constitute the "centre" whereas other units in the world may provide appropriate "spokes", said California-based Evalueserve's Chairman Alok Aggarwal.

July 23, 2007
Source: The Times of India

SC's Morgan Stanley verdict’s still a maze

The Supreme Court’s verdict in the case of investment banker Morgan Stanley has generated more confusion than before. The verdict was believed to have resolved a long-standing debate over the taxability of the MNC’s operations in the country, but many experts now think otherwise.

The apex court said if the MNC paid the Indian agent (permanent establishment in tax parlance) at arm’s length price, it should not be subjected to further taxation. Now, the confusion is over an April 2007 verdict in a similar case of Sony Entertainment Television (SET) by the Income Tax Appellate Tribunal (ITAT), which stood for taxing such operations even if the parent company had paid its Indian agent (PE) at arm’s length price.

A set of tax professionals think the two cases are similar in nature and hence, the decision of the Supreme Court overrules the order of ITAT, which is at best a quasi-judicial body.

But the I-T department and many tax professionals think both cases are different. Therefore, the Supreme Court verdict does not overrule the ITAT decision on SET. The ITAT, in case of SET, held that the PE could still be subjected to tax in India even if it has been paid at arm’s length price by the parent company.

STAR TV, Citibank, American Express and DHL have similar issues and cases pending before ITAT. The ongoing debate over the two decisions has a bearing on the tax burden on these entities.

July 23, 2007
Source: The Economic Times

HP’s BPO outfit scaling up analytics team

Global e-Business Operations Pvt Ltd, the BPO outfit of Hewlett Packard, plans to scale up its analytics team to about 1,000 by next year-end up from the current 450 as it gears up to tap business outside HP-group entities.

Mr Prithvijit Roy, Vice-President, Decision Support & Analytics Services, HP BPO, said the ramp up would happen at both delivery centres in Bangalore and Chennai. Bulk of the analytics workforce is currently located in Bangalore.

“We are aggressively trying to pursue business outside of HP and expect to sign our first customer this year,” Mr Roy said. The company is currently testing the market by engaging in pilot projects with non-HP clients. The analytics team, which started operations about two years ago, has grown aggressively driven by the robust demand from different HP entities.

The analytics team offers services such as performance analysis, business research, primary research and statistical modelling and optimisation among others. The data explosion is fuelling the demand for analytics services as companies are looking to utilise it meaningfully to predict and improve their business performance.

HP BPO is focussed on providing analytical solutions in areas of finance and risk management, sales and marketing and supply chain management among others, Mr Roy said. Further, Mr Roy said India, due to its vast talent pool, has become major destination for analytics kind of work. HP has been collaborating with various management institutes in developing curriculum and has started hiring from campuses.

July 23, 2007
Source: The Hindu Businessline

BPOs target smaller towns for better biz

After expanding their business in tier-II and III cities, the BPO industry has started exploring options in the tier-IV, V and VI cities. As the industry is facing dearth of manpower, many BPOs are moving to smaller cities, which is helping them to cut cost.

MP Dubey, joint director of Software Technology Park of India said, “The scenario is changing. While earlier call centres were of minimum 20-25 seater, now the numbers have come down to 8-9. “GE is exploring options to set up call centres in tier 4 cities. In near future, firms may go to tier-5 and -6 cities.”

According to a survey by the World Association for Small and Medium Enterprises, Small cyber enterprises in rural areas can take up jobs like data conversion, digitalisation, data entry. While knowledge oriented outsourced jobs remain at centre, such low-end jobs could be moved to SCEs and rural BPOs.

DN Gupta of Institute of Social Sciences said, “Small towns are also going to emerge as major players in outsourcing business.” He added, “Once we have the broadband connectivity in these towns and villages, rural BPos would be a success.” Gupta said in all these years, government has played key role to put in place proper infrastructure and then the private players have taken it ahead.

Dr Sunil K Agrawal, director of STPI, said, “There is greater scope for outsourcing in rural areas. It’s not essential that we need to look at UK, US for outsourcing business. These call centres can meet our local demand and that’s already happening.”

July 23, 2007
Source: The Times of India

China eyes India's slot as top outsourcing hub

India, which has emerged as the back-office of the world in recent years, is expected to face stiff competition from countries like China, Malaysia and Singapore even as the global outsourcing industry is pegged to reach a market size of $1,430 billion by 2009-end.

A survey conducted by global consultancy firm Frost and Sullivan has ranked India as the top destination for shared services and outsourcing (SSO) across various verticals. The country is followed by China, Ireland, Singapore, Malaysia, Mexico, Czech Republic, Poland, the Philippines and Canada.

Low labour costs and skilled manpower are the key factors behind India's sustenance as the top outsourcing destination globally. But there is a threat from countries like China which is fast emerging as an attractive destination for outsourcing IT, research and development and procurement services, it added.

India's growth is beleaguered by factors like high attrition rates, poor infrastructure, rising wages and appreciation of rupee against US dollar, the report said. The study also forecasts the global SSO market will grow at a compound annual rate of 15 per cent to reach a market size of 1,430 billion dollars by end-2009.

Malaysia, which boasts of excellent infrastructure and low attrition rates, also makes for an ideal outsourcing hub, the Frost and Sullivan study said. The south-east nation is already a strong player in banking, financial services and insurance (BFSI), transportation and energy verticals. Besides, companies such as Dell, Satyam and IBM have recently made outsourcing investments in Malaysia, making it a hub catering to the technology sector, it pointed out.

The study covered Fortune 500 and Forbes 2000 companies and was conducted across seven major industry verticals -- banking, financial services and insurance, technology/ICT, healthcare industry, transportation and logistics, energy, fast-moving consumer goods and media and entertainment.

A report by audit firm PricewaterhouseCoopers (PWC) has also said although India remains the most favoured destination for outsourcing, countries like Singapore were gaining favour.

July 22, 2007
Source: The Economic Times