KPO, LPO and EPO, with specialised centres in Philippines

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

Indian BPOs would do well to scramble up the value chain in service offerings to focus on KPO, LPO and EPO, with specialised centres sprouting across the globe for certain services like Dubai for financial services, Philippines for voice-related work or Russia for high-end software development .

- Chillibreeze Business Research Team

ExlService to expand in India, overseas

ExlService Holdings Inc, one of India's leading integrated business process outsourcing (BPO) firms, plans to invest $8 million for a new unit in Hyderabad even as it eyes overseas markets. EXL has three units in Gurgaon, Pune and Noida. The Hyderabad unit is slated to open by mid-2008.

"We are currently focussed on both organic and inorganic growth and are constantly scouting for captive partners as we want to take full advantage of the increasing trend of captives selling out to third-party BPOs," said Rohit Kapoor, president and co-founder of EXL, who is also its chief operating officer, while elaborating on the company's plans to expand overseas.

The Nasdaq-listed BPO firm will soon open its BPO facilities in the Philippines, Romania and Croatia by following both the inorganic as well as greenfield route. "We selected the Philippines because of their voice capability to handle international clients. Romania and Croatia were chosen because of their language skills," Kapoor maintained.

ExlService Holdings was recently rated one of the top 10 Indian third-party BPO players by the Indian IT industry's apex body Nasscom (National Association of Software and Service Companies).

July 15, 2007
Source: The Economic Times

BPOs scout for overseas buys to expand footprint

The rising rupee, the need to penetrate new markets, and acquire new skills and customers is driving BPO companies to look at overseas buyouts. At least five business process outsourcing (BPO) companies that ET spoke to — Gurgaon-based Salient, Mumbai-based Zenta BPO and Integreon, Noida-based EXL and Bangalore-based Infosys BPO — are actively scouting for overseas buys.

Salient BPO is scouting for acquisitions in the range of $35-40 million. Backed by the $3.5 billion Thapar Group, Salient is a JV between BILT and a US-based healthcare services provider.

Zenta BPO country manager Jaswinder Ghumman said, “We have achieved a critical mass of $100 million in revenues. We are looking at mid-sized buyouts preferably in East Europe. The buyout will be to service the European market and to acquire a new capability.” Integreon is also looking for buyouts in knowledge process outsourcing (KPO) space. Noida-based EXL has already announced its plan to close a large buyout soon. With cash assets of over $85 million, the Nasdaq-listed BPO is scouting for bigger $50-75 million buyouts.

While some companies are looking to increase geographical presence to spread currency risk, others are looking to penetrate a new market. With the rupee rising 6.8% against the dollar in the last three months and wage hikes of about 15% annually, companies are looking to diversify their geographical spread.

July 13, 2007
Source: The Economic Times

India to be hub of $16.7 bn KPO industry

It’s the sector that holds most promise in the outsourcing pie. And now a report predicts it’s poised for big times ahead. The report says the knowledge process outsourcing industry (KPO) will be worth $16.7 billion by 2010-11.

With an annual growth rate of 39% for the next four years, it will grow even faster than the BPO sector globally. What’s more, while in 2006-07 KPOs employed 106,000 professionals worldwide, their numbers are expected to grow and touch 350,000 by 2010-11.

But the real good news is for India. India will be the future hub of KPO sector and competitors — China, Philippines, Russia — will be spokes of the industry. These predictions are made by Alok Aggarwal, chairman Evalueserve in his yet to be released report, ‘India’s Knowledge Process Outsourcing Sector: Origin, Current State, and Future Direction’.

The earnings for the segment went up from $1.2 billion in 2003-04 to $4.4 billion in 2006-07 — that is an annual growth of 54% worldwide. Similarly, the number of employees too grew from 34,000 in 2003-4 to 106,000 in 2006-07. In India, KPOs employed around 9,000 professionals in 2000-01. By 2006-07 their numbers had scaled up to 75,400 generating $3.05 billion.

In comparison, BPO revenues moved from $7.7 billion in 2003-04 to $15.8 billion in 2006-07, that is an annual growth rate of 27%. In the next four years, it’s expected to grow at 26% annually and generate $39.8 billion.

July 13, 2007
Source: The Economic Times

Genpact, WNS ranked India's top ITeS-BPOs

IT enabled services provider Genpact has been rated as the biggest ITES-BPO company in the country in terms of revenue while WNS Global Services has retained the second spot in the annual rankings given by industry chamber Nasscom.

Nasscom, in its annual third party ITES-BPO companies rankings for FY 06-07 released today, has rated Transworks Information Services as the third biggest ITES-BPO company followed by IBM-Daksh, TCS BPO, Wipro BPO at the fourth, fifth and sixth positions respectively.

The rankings are based on companies' reported revenue for 2006-07.

Other companies featuring in the top 15 list include Firstsource Solutions, HCL BPO, Infosys BPO, EXL Service Holdings, Citigroup Global Services, Aegis BPO Services, HTMT Global Solutions, 24/7 Customer, Mphasis BPO, Nasscom said in a statement.

The list, however, does not include companies having India-based delivery capabilities, but with corporate headquarters located outside India, if they have not shared their revenue from Indian operations, it said.

The ITES-BPO sector grew by 33.5 per cent in the last fiscal contributing 8.4 billion dollars to the total software and services exports of 31.4 billion dollars. ITES-BPO employee base also grew to 5,53,000 in FY 07 from 4,15,000 in FY 06. The domestic market for ITES-BPO grew to 1.2 billion dollars in FY 2006-07 from 0.9 billion dollars in FY 2005-06.

July 12, 2007
Source: The Economic Times

Vietnam: The next BPO hotspot?

Vietnam would soon take over China and India as a more popular outsourcing destination, an online article said.

The tip was made on July 10 by Harvey Nash, a British recruitment company that recently acquired Ho Chi Minh-based recruitment business SilkRoad for $1.8 million.

The recruitment company said Vietnam has the second-highest gross domestic product growth after China and the country is now the third-largest offshore-services destination in Southeast Asia.

The emerging position of Vietnam as a new outsourcing hub was firmed up by a fast-growing information technology work force. The country's labour pool has about 80,000 IT graduates with some 9,000 more graduates added every year. More than half of Vietnam's 84 million population is under 25 years old and the number of science-majoring students account for 83 percent of the total number of graduates.

Companies already outsourcing IT services to Vietnam include Honda Motor and Intel, the world leading chip producer that has just invested $1 billion in a chip factory in southern Vietnam.

July 12, 2007
Source: The Times of India

BPO says 'No' to pay hikes to juniors

Evidently for some BPOs, it is better to have hired and lost people than to have not lost them at all. These firms are beginning to feel that it is better to have high attrition rate at the entry level rather than dole out hefty hikes to retain these employees. Not the sort of advice an HR professional will give but there it is.

A large BPO is learnt to have calculated the cost of training an employee, productivity loss on the event of the employee leaving and has concluded that letting them quit is less of a financial burden. Experts in the industry are apprehensive about this and feel that if this trend continues, it will typically be for fresh employees in the transaction business.

A 2007 Nasscom report, however, shows that the total cost to company (CTC) for process associates, who have been in the organisation for six months-one year has gone up by 19% in 2006 compared to 3% in 2005. The CTC for process associates who work for less than a month has grown by 16% in 2006 compared to 3% in 2005. Also, the industry average for people who quit before a year ranges from 30-40%. Experts reckon that this may be true for employees in transactional processes and ones that deal in inbound or outbound calls.

FirstSource HR head Ashu Calapa says that it is the period between 6-24 months that hurts them the most in case an employee quits. “It could take anywhere from six to eight weeks to train employees and when they leave in the eighth or the ninth month, it hurts us. It’s not that bad if the employee leaves after three years as replacement can be economical.” Mr Calapa also contends the premise that transactional operations are not training intensive.

The fact that training cost could come down for a larger batch size is rubbished by almost all experts ET spoke to. “Irrespective of where the training is being held — internally or externally, the fact remains that the group can’t have more than a specified number of employees,” says an HR consultant. The loss in productivity is also relative. Says Impact HR Services MD Prakash Kewalramani, “It’s unlikely that such a phenomenon exists as the cost of productivity is typically 5-6 times the income a person gets.

It also is the selling time of the seat a person occupies.” The ways of calculating productivity also vary. While in transactional data processing, it is the number of documents an employee processes, in a voice-based process, it is the average handling time per call.

July 12, 2007
Source: The Times of India

Outsourcing: India faces Chinese threat

India remains the world's top outsourcing hub but is facing increasing threat from rival China due to India's high attrition rate, poor infrastructure and rising wages, a global research group said on Wednesday.

According to its 2006 global outsourcing survey, Frost & Sullivan said India was the favorite hub followed by China, Ireland, Singapore, Malaysia, Mexico, the Czech Republic, Poland, the Philippines and Canada.

The survey covered some 300 multinational firms in seven sectors: financial services, technology, health care, fast-growing consumer goods, transportation, energy, and media and entertainment. When respondents were asked to choose their top three outsourcing hubs, India scored 2.25, China 1.76 and Ireland 0.77.

However, India's lead in the industry is being challeged by China's ability to cover lower end functions such as back office processing to high value services and its wide talent pool, the study found. Also, Beijing's hosting of key events such as the 2008 Olympics make it a strong contender, it said.

Despite churning out 3 million graduates each year, demand for experienced professionals in India is outpacing supply, leading to attrition levels of up to 40 per cent or higher, especially in the technology sector, said Aroop Zutshi, the group's president for Asia-Pacific and Europe. Zutshi said Malaysia, Singapore and Dubai are emerging as key contenders for outsourcing services and will benefit from India's consolidating market.

The survey said new locations are also sprouting for specialized functions such as Russia for high-end software development and Dubai for banking and financial services.

It predicted the global outsourcing market for the seven sectors to grow an average 15 per cent a year to surge to $1.43 trillion (euro1.05 trillion) by 2009, from $930 billion (euro680.52 billion) last year.

Financial services and technology accounted for more than half of outsourcing spending in 2006 and will remain key drivers over the next few years, together with health care and consumer goods, it added.

July 11, 2007
Source: The Economic Times

'India not taking away British jobs'

The fear of large numbers of good quality British jobs being outsourced to rapidly developing countries such as India may be overstated, says a new report published by The Work Foundation.

Despite the rhetoric of an abundance of Indian knowledge workers hungry for British jobs, there is little direct evidence so far of significant job migration, the report finds, setting at rest fears that India is taking away a large number of British jobs.

The report also says that British trade in information and communications services with developed countries such as Germany dwarfs that with India. The Work Foundation is an independent research organisation and consultancy.

The report finds that according to independent analysis just 5.5 per cent of all jobs lost across Europe were due to off-shoring activities in the first quarter of 2007. In 2005 the figure was 3.4 percent. Meanwhile jobs in sectors theoretically vulnerable to outsourcing such as call centres have gone up rather than down in Britain.

The report says travel (£626 million) and transportation (£289 million) are the largest services imported from India while computer and information services (£122 million) are only the third largest import.

Katerina Rüdiger, author of the paper - "Globalisation, a threat for the UK's knowledge jobs" - said: "If you go to an Indian business district you could be forgiven for thinking the whole world is chucking work and jobs at India because of its magical high-skill, low-wage mix. India's high tech sector is indeed booming, but is not 'coming for our lunch' as some of the more apocalyptic commentators have suggested.

"Technology has always led to people being displaced from some lines of work into others, but what is not happening is a straightforward job migration from North to South, West to East."

Over recent years, the debate about offshore outsourcing has taken on an alarmist tone amid anxiety that lawyers, medical professionals, software designers, actuaries and chartered surveyors were all potential victims of outsourcing. The report argues that self-serving claims from consultancies and aggressive public relations work by outsourcing companies themselves have tended to drown out the careful analysis of data regarding off-shoring.

Rather than a clearly defined trend of western multinationals off-shoring to save money on labour costs, the report argues that increasingly companies are mixing business models, combining near-shoring, off-shoring and retaining operations close to home. Cultural difference remains a critical component of business models.

Meanwhile, successful Indian companies are setting up and creating jobs in developed western countries and targeting affluent western consumers. Countries that outsource most also tend to be the recipients of most outsourcing.

The top recipients of outsourcing are rich, industrialised countries rather than poor, developing ones, the report says.

July 10, 2007
Source: The Times of India

Stanchart sets up pvt banking hub in Chennai

Standard Chartered Bank today announced that it had set up its global private banking hub in Chennai, under its wholly owned, captive, BPO subsidiary, Scope International Private Ltd.

The bank has private banking operations in ten cities across the globe (more coming up) and the Chennai hub would handle all the transaction processing, Mr Peter Flavel, Global Head, The Standard Chartered Private Bank, said at a press conference here today. He said that Scope was initially set up as a cost arbitrage opportunity by offshoring processes, but “has evolved into a centre of expertise, providing risk-controlled process efficiency.”

Today, it processes 80 million transactions for Standard Chartered Bank annually.

July 10, 2007
Source: The Hindu Businessline

Hinduja BPO may offer consultancy, keen on US acquisition

HTMT Global Solutions, the ITES firm of the Hinduja Group, is looking at bringing in consultancy to its portfolio of services and this could preferably be done through an acquisition. The company would be looking at acquiring a mid-sized consulting firm in the US.

The company, which provides both back office and voice services, will be able to move up the value chain with the new service, HTMT Global CEO Partha Sarkar said.

Mr Sarkar said the company will be expanding its presence into tier 2 cities in India. It currently has presence in Mysore, Karnataka and Durgapur in West Bengal and is looking at adding two more locations by the end of this fiscal. It plans to raise the headcount to 12,500 by the end of this fiscal from the current 10,000.

The company is also looking at extending its presence to Latin America in the next fiscal. It has 19 delivery centres across the US, Canada, Mauritius, the Philippines and India. The US and Canada presence was expanded through the acquisition of Affina for $30 million last year.

The company, which has an existing revenue of Rs 585 crore, with reserves of about $115 million, is looking at becoming a $500 million company by 2010 through both organic and inorganic growth route.

July 10, 2007
Source: The Economic Times

SC ruling clears the air on captive BPO taxation

The Supreme Court pronounced a significant ruling on Monday (July 9) which would have implications for transfer pricing policies of MNCs operating in India. The matter arose because of a ruling by the Authority for Advance Ruling (AAR) in February 2006 in the case of Morgan Stanley Inc. The issue centred around the circumstances in which the Indian revenue would have the legal right to incrementally tax profits from activities carried out outside India by the parent MNC of captive BPOs in India over and above the profits earned by the captive BPO in India for their India activities.

The AAR ruled that as long as the Indian BPO was remunerated for its services at arm’s length by parent MNC and as long as its actual income was subject to tax, no further income could be attributed in the hands of parent MNC in India.

Technically, Morgan Stanley constituted a taxable presence in India (service PE) by virtue of the fact that Morgan Stanley employees were sent on stewardship to the Indian BPO to brief the staff of the Indian BPO on the standard of services expected and to monitor the overall outsourcing operation at the BPO in India. It was observed that the deputed staff would be involved in day-to-day activities of the BPO and would be in India for more than 90 days in a taxable year so that their presence in India would constitute a service PE under the Indo-US Double Tax Avoidance Treaty (DTAT).

Incidentally, in reaching the conclusion on arm’s length remuneration extinguishing any further tax in the hands of Morgan Stanley, note was taken of a guidance issued by the Central Board of Direct Taxes (CBDT) way back in 1969 which stated that if a non-resident carried on business in India through an agent, and the agent was remunerated on an arm’s-length basis, there would be no need to subject to tax in India any further income in the hands of the non-resident over and above the income of the resident agent in India.

This ruling also highlights the growing importance of robust transfer pricing documentation and economic analysis of functions and risks undertaken by relevant entities in international transactions to determine whether the country in question has a right to tax income in respect of activities carried out in a country’s jurisdiction over and above the remuneration already charged by the related parties.

The Indian Revenue Authorities by now have sufficient industry data on revenue methodology provided for the BPO industry and aided by independent economic analysis if any, Indian Revenue should be able to confirm pricing arrangements of captive BPOs upfront through the APA mechanism.

The Supreme Court ruling provides tremendous legal certainty in respect of captive BPO taxation in India. The APA mechanism will similarly provide a great amount of certainty in respect of final tax liability on captive BPOs income in India as it will enable the determination of arm’s-length remuneration in advance, rather than two years after finalising tax returns in the course of assessment proceedings.

July 10, 2007
Source: The Economic Times

Outsourcing: China catching up with India

Top Indian off-shore business destinations are in danger of being overtaken by Chinese cities as favoured outsourcing destinations, a study said Monday.

Information technology (IT) research agency IDC compared cities in the Asia-Pacific region as potential off-shore delivery centres based on such criteria as labour costs, rent, language skills and turnover rates.

Such cities in India as Bangalore, New Delhi and Mumbai may be eclipsed by Chinese cities including Shanghai, Beijing and Dalian, the study said. This year's top outsourcing destinations, according to the agency's index, are Bangalore, Manila, New Delhi, Mumbai, Dalian, Shanghai, Beijing, Sydney, Brisbane and Auckland.

This is likely to change by 2011, IDC said, to Shanghai, Bangalore, Dalian, New Delhi, Beijing, Mumbai, Manila, Hyderabad, Kuala Lumpur and Brisbane.

"Chinese cities are catching up fast because they learned from their Indian counterparts about what is needed for successful outsourcing," Conrad Chang, IDC Asia-Pacific research manager, told The Business Times.

Several aspects are crucial, he said, such as massive investment in infrastructure, development of relevant skills in languages including English, Japanese and Korean and investing in education to produce skilled engineers, computer scientists and managers.

The potential of a large domestic outsourcing market is also a key attraction. "IDC feels that the combination of all these factors might just give China the edge," he was quoted as saying.

July 9, 2007
Source: The Economic Times

BPOs rev up success story, cabs on accident overdrive

BPOs form an integral part of India’s growth story in the new millennium. But their success is riddled with some sad tales too, especially in the NCR. In the past few years, call centre cabs in the region have been involved in numerous road accidents in which many employees and passersby have lost their lives.

Though cops in Gurgaon, the BPO capital of north India, have issued guidelines to check ‘‘overspeeding and negligent driving’’ by drivers of call centre cabs, these norms are routinely flouted. Industry insiders say that the laxity of police to implement the guidelines and the indifferent attitude of BPOs to sensitise their drivers have made the situation volatile.

Sources in the industry say call centres spend about Rs 3,000 a month as transportation cost on each employee but they don’t wish to increase this expense by hiring more cabs. ‘‘So, at the end of the day, the existing fleet covers more areas and ferries more people which explains their high speed,’’ said an industry insider. He added that speed governors have been installed in many cabs but they are of little use.

The major players in the BPO sector say they know their responsibility and they strictly adhere to the guidelines. Sanjay Mehta, managing director, India operations of Teleperformance, says: ‘‘We make sure that cab drivers are looked after. We have a place for them to rest, sleep and wash. We offer them clean drinking water, tea and coffee to ensure that they so that they get adequate rest.’’ He added that their staff contribute towards education of 10 outstanding schoolgoing kids of cab drivers. Other BPO players also said that to discipline their drivers, they have provision of fining the erring drivers.

But residents don’t buy these views. ‘‘Whatever they claim, the result is for everyone to see. They drive recklessly,’’ said Sudhir Yadav of DLF-II where many of the top BPOs have their office.

In Noida BPO circles too, employees are worried about their safety, especially with frequent incidents of accidents involving call centre vans. Last Wednesday, two call centre employees were killed when a speeding Scorpio rammed their cab.

July 8, 2007
Source: The Economic Times