LPO is the current flavour in the happening Indian outsourcing sector

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

LPO is the current flavour in the happening outsourcing sector. Finding the right skill sets is a major challenge in this segment, but apparently big players like Infosys and Wipro are studying this model.

- Chillibreeze Business Research Team

BPO staff caught two timing

High attrition, managing the ambitious brat pack, and even office romance. Now add another nightmare to the burgeoning list of BPO HR managers’ woes: Dual enrollment.

Cashing in on the employee-friendly policies of the BPO industry, a large number of freshly minted graduates call in sick just a few days after joining duty, avail medical leave and join a rival BPO while continuing on the payroll of the previous employer. This means that while he actually works for one, he draws salary from both BPOs at the end of the month. The person, at times, is seen pitching one BPO against the other.

Little wonder then, the industry is alarmed and is figuring out ways to curb the malaise. “We have seen such instances where people go on medical leave during the training period and then we discover they have joined another company,” says 24/7 Customer chief people officer S Nagarajan. “To curb this, we have enrolled ourselves with Nasscom’s national skills registry (NSR) and are getting more stringent background checks done.” It is important for BPO as such deviant employees could pose data security threat as well.

According to industry estimates, two out of every 10 employees indulge in such practices. Such dual employment hurts BPOs in more than one way. A person working on one account can share critical IP data with other accounts as well. But generally such phenomenon is limited to non-serious candidates, who are just keen on making a fast buck and moving on.

HR managers in BPOs have also wisened up. If an employee’s leave period exceeds beyond 15 days, his salary is immediately put on hold. In many cases, the companies have a provision to debit the salary from the employees’ account, if its already credited. Some of them insert a clause in the employment contract whereby the new recruit is liable to pay the firm the cost of training if he quits after training.

It’s mostly college students who are seen resorting to dual employment during their 2-3 months of college vacation. Students planning to go overseas for further studies are also seen resorting to dual/triple employment while they wait to get their visa applications processed.

Interestingly, such is the desperation due to the high attrition that many BPOs who do discover that the employee has joined another BPO, are willing to take them back. This is because the firms have spent large amounts on their training. Moreover, hunting for a fresh talent would cost more money.

June 29, 2007
Source: The Economic Times

ITeS exports cross $31 bn in 2006-07

The IT boom continues to yield strong growth figures for the industry. The software and ITeS exports from India are expected to exceed $31.3 billion during the year 2006-07, up by 32% compared to the previous year. Also, the software and ITeS sector’s contribution to the gross domestic product (GDP) is expected to rise to 5.4% in 2006-07, up from 4.8% in 2005-06.

According the 2006-07 annual report of the ministry of communications and information technology, while the US and the UK continue to be the dominant markets for IT exports, Indian IT firms are also keenly exploring new geographies. Today exports to the US and UK make up 67% and 17% of the total exports, respectively. Banking, financial services and insurance and technology (high tech and telecom) are the main IT verticals accounting for nearly 60% of total exports. This is followed by manufacturing retail, media, utilities, healthcare and transportation that are rapidly growing verticals, says the report.

Over the last six years, India’s share in global sourcing is estimated to have grown from 62% to 65% for IT and from 39% to 45% for BPOs. The report attributes the fast growth of the IT-BPO segment to the leading demand for global sourcing and the evolving socio-political attitudes.

June 27, 2007
Source: The Economic Times

Blackstone-Intelenet deal validates Indian BPO industry's strength'

The acquisition of Intelenet by private equity giant Blackstone signals a new era for the outsourcing industry, according to Mr Prakash Kamath, Principal Consultant, PricewaterhouseCoopers.

Speaking to Business Line on the largest management buyout deal in the country so far, he said: "The BPO industry has for long been hailed as the `sunshine' sector in India. It would be apt to say that this industry is now delivering to its potential."

The deal comes as a shot in the arm for the sector, which has been seeing turbulent times due to the falling dollar, increasing employee costs and constant depletion of skilled personnel, he added. The value of the deal is said to be in the region of $200 million (Rs 820 crore). Blackstone recently raised $4.13 billion in the biggest US IPO in five years, selling 12.3 per cent stake, which values the company at $33.5 billion.

Mr Kamath said that it is also a pointer to the emergence of private equity in India. "Private equity investors from around the world — including big-ticket players like Carlyle Group, General Atlantic Partners and the UK's Actis Partners — are increasing their bets on Indian corporate houses or making new ones."

However, ever since the rupee began its upward march, gaining by as much as 10 per cent against the dollar, BPO firms have taken a big hit. "Suppose a BPO firm functions at an operating margin of 25-20 per cent. For this firm, the drop in operating margins would be a massive 40-50 per cent, assuming that all revenues are in dollars and there is no hedging," Mr Kamath said. He added that the top-tier companies of the industry would be able to tide over these times thanks to access to easier finance and labour.

"As for the smaller players, it has been seen that they are either finding financing partners with multimillion dollar pockets to fund their expansion plans or are being acquired by larger BPO firms or IT firms with BPO aspirations."

Dwelling on the dynamics of the BPO industry, he said: "Most companies start off with one major client (for instance, Intelenet-Barclays) or as a captive unit (like Genpact-GE). "In the next step, the client acquires a major stake in the BPO. As the last step of the cycle, the client divests from the BPO operations at a profit. All along, the client relationship remains active."

June 27, 2007
Source: The Hindu Businessline

India is offshoring hub, but may lose to China

India continues to be the global offshoring hub but is likely to lose its share of two-thirds of offshored staff in the next 10 years due to stiff competition from China, according to a report by consulting firm Deloitte.

The report, titled Global Financial Services Offshoring Report 2007, states that offshoring is saving the financial services industry an estimated £4.5 billion a year, up from around £2.5 billion a year ago, propelled by an 1,800% increase in headcount over the last four years. The UK financial services industry alone now saves up to £1.5 billion per year from offshoring, most of it to India.

The report adds: “India remains offshoring’s hub but is likely to lose share in the future. The DTT GFSI group estimates that about two-thirds of global offshored staff are employed in the sub-continent. China threatens to be India’s principal offshoring competitor.

“Some 200 million Chinese people are currently learning English, providing a growing pool of skilled labour that may compete with India over the next 10 years. China’s share of offshored labour is already rising, with a third of financial institutions now having back-office (mainly IT) processes based in China.

“China’s growing competitiveness may dampen salary inflation among Indian offshoring industry workers. Further, there are growing concerns over the supply of skilled workers in India. Only 10-15% of Indian college graduates are considered suitable for direct employment in the offshoring industry. This may result in a shortfall of up to half a million professionals by 2010.”

Chris Gentle, associate partner, financial services, at Deloitte and author of the study, said: “Offshoring is maturing at a rapid pace but, in future, the best offshoring strategies will not, and cannot, be based on labour arbitrage alone.”

June 27, 2007
Source: The Economic Times

Nipuna's role in `Sivaji' fights

Business process outsourcing services provider Nipuna, a subsidiary of Satyam Computer Services Ltd, has contributed to the animation sequences of the Rajnikant starrer Sivaji, with inputs for the movie's fight sequences. The Nipuna animation team, which has a host of global projects, worked on the B&C Mills scene, and car fight scenes in Sivaji. The team has earlier worked on hit movies such as Pokiri, Stalin, Desamuduru, Lakshmi, and Something Something. Nipuna is also handling a $25-million development deal for 4K Animation, a German company.

June 25, 2007
Source: The Hindu Businessline

LPOs to add more punch to India action

The legal process outsourcing (LPO) sector in the country is likely to see more action in the coming months. As of now only around 30% of the top ten Indian BPO players have evinced interest in entering this segment. But, according to industry experts, big players like Infosys, Wipro and others are studying this model and could look at entering this business in the near future.

It makes sense for the BPOs to enter this segment because the profit margins in LPOs are higher. And legal-process outsourcing is part of high-end knowledge process outsourcing, which many of these BPOs are already into. However, this buoyant sector could present many challenges to the BPO sector, the biggest among them is finding the requisite talent.

Also, with LPO firms across the country having smaller teams and serving niche clients, defining a suitable business model is important for these large-scale BPOs. There is huge potential in the LPO segment, but there is gestation period of about 3 years that slows down the growth.

Many of the LPO companies are more specialised and boutique kind of firms which are doing higher-end work and having smaller teams. It could be very difficult for the BPOs to scale up the operations in such a scenario,” said Avinash Vashistha, CEO, Tholons.

LPO is a business segment pegged at $3-4 billion by Nasscom

June 25, 2007
Source: The Economic Times

NetMagic to set up 5 data centres in four cities

NetMagic Solutions, a managed service provider is on an expansion mode and is looking at setting up data centres across the country.

Headquartered in Mumbai and started in 1998, NetMagic has been providing managed hosting and remote infrastructure management services primarily to the Indian market since 2000.

Sharad Sanghi, CEO, NetMagic, said that it is looking at having five data centres across four cities in India by the end of this year. It currently has two data centres at Mumbai and one in Bangalore, while looking at setting up similar units in Chennai and Delhi.

Each of the data centre would see an investment of $2.5 million and having a space of 1.25-1.50 lakh square feet. NetMagic, which currently has around 450 customers who are primarily internet centric companies and enterprises, is looking at broadbasing its geographical spread.

Mr Sanghi said it has recently set up its office in US to tap into the growing remote infrastructure management market. It would primarily target the small and medium business enterprises in offshoring its infrastructure management services.

The NetMagic CEO said that currently 20% of its revenue comes from the US and expects it to reach to 50% in another three years time. Besides US, it is also looking at foraying into the UK and Australia over a period of time.

B V Jagadeesh, chairman of the company is looking at tapping the capital market in the next 18 months. He said NetMagic has recording 100% growth annually and is looking at touching $100 million in revenue in another 3 years.

June 25, 2007
Source: The Economic Times