The Top Ten Obstacles To Outsourcing Growth

NASSCOM pegs India’s offshore IT revenues at US$ 13.3 billion in 2005-06, of which, the BPO revenues account for US$ 6.2 billion. India’s market share is now a shade below 50% of the global BPO segment. According to the NASSCOM-McKinsey Report 2005, the addressable market for the global BPO industry could expand tenfold from US$ 11.5 billion to US$ 120-150 billion in the next 5 years.

By 2010, India’s offshore IT-BPO segment has the capability to generate US$ 60 billion in export revenues. At this level, they would employ 2.3 million people and provide indirect and induced employment to another 6.5 million people.

What could impede the staggering growth rates of the outsourcing sector? Presented below are the top 10 obstacles that could put a brake on India’s scorching growth if not addressed soon enough.

1. Availability of Skilled Manpower: The outsourcing industry will face a shortage of skilled workers in the next decade. Although the number of engineers and graduates passing out of Indian Universities is high, barely 25% of technical graduates and 10-15% of general college graduates are employable in the BPO industry. Additionally, there is a discernible shortage of quality people in the middle management ranks that will prove to be detrimental to the industry’s growth, if not addressed quickly.

2. Quality of Education: The key reasons why a bulk of the huge pool of graduates in India are unemployable are minimal technical skills and poor command over the English language. To sustain the knowledge and labor pool advantage, it is necessary to foster tie-ups between the industry, the State Governments and educational institutions, with emphasis on changing curriculum at school levels and improving language, computer and soft skills. New integrated certifications and skill-based programs geared towards the outsourcing industry need to be designed and implemented.

3. Salary Hikes: The salary differential between an Indian and a US worker is in the range of 1:6 or 1:7. However annual salary hikes of 30%-50%, which is the norm in the BPO industry, will make the current substantial cost savings unsustainable. BPO outfits vie for the same talent pool and offer substantial raises to poach skilled people.

4. Hiring Right: In the aftermath of recent Western media outbursts against domestic BPO employees misusing customer data, it has become imperative to hire people with high standards of integrity. Indian firms need to take data protection concerns very seriously to avoid denting the image of this high-momentum industry.

5. Attrition: Retention of good people is a big concern for most BPO companies. In voice-based call centers, a 50% attrition rate is not uncommon; while in non-voice based BPOs, the rates hover around 35-40%. Given the massive growth rates of outsourcing companies and the equivalent high levels of attrition, a standard BPO outfit turns into a veritable recruitment office, spending an inordinate time just hiring people.

6. Infrastructure: India’s Tier 1 cities i.e. Mumbai, Bangalore, Delhi, Chennai and Hyderabad are at breaking point. Serious bottlenecks in basic infrastructure such as power, water, roads and airports exist. The concentrated mushrooming of outsourcing companies in these cities further adds to the strain. The Government has to develop new integrated townships in close proximity to the Tier1 cities, for future expansion of the BPO sector. Companies also need to expand their presence to Tier 2 and Tier 3 cities in the country, and go beyond the over-saturated metros.

7. Changing Market Dynamics: The outsourcing market has become more complex, with deals getting larger and buying cycles getting more difficult to manage. BPO service providers have to move up the value chain and focus on upgrading their services. It would help if they explore new business opportunities and new service lines. For instance, Cap Gemini has begun offering technical documentation services to the
aerospace segment.

8. Need for Differentiation: Indian BPO and KPO companies need to differentiate themselves by focusing on specific processes and industry verticals. The NASSCOM-McKinsey study suggests BPOs evolving into one of the four models –

• Global Champion – Offer multiple service lines and solutions to large customer accounts
• IT Specialist – Focused on 3-4 industry verticals or cross-industry service lines
• ADM Factory – Low cost provider of application development and maintenance services
• Specialist BPO – Manage multi-location global delivery model

9. Competition From Other Countries: Other nations like China, The Philippines, South Africa and East European countries are competing with India to get a slice of the outsourcing pie. While India is currently well placed in the BPO market, it needs to constantly innovate and stay a few steps ahead of its rivals.

10. New Markets: The majority of the clients that outsource to Indian BPOs are based in the US. India needs to explore other geographical markets like the European Union and Asia. The country needs to ramp up the number of knowledge workers fluent in languages such as French, German, Japanese, and Spanish, to exploit these opportunities.

Find more reports and presentations with a focus on India

	Food & Retail - Visual Merchandising, Pharma, Discount, Malls, Single Brand Stores, Wine, Cheese, Retail Scene Travel & Tourism - NE Travel Guide, Delhi, Myths about India, Retiring in India, Jaipur Guide, Spirit of Dasara, Guide to North Indian Cuisine Expat & NRI Resources - Investment and Tax FAQs for NRIs , City Guides, Holidays in India, Living in India, The Young NRI and Life in India Emerging Services and Industries - Real Estate, Medical Tourism, BioTechnology, eCommerce Industry in India, eLearning industry in India Trends, Statistics & Developmental - Electricity in India, Inflation Survival Guide for India, Pre-Hire Assessment and Testing in India, Indian Youth Readership Trends Outsourcing - Legal, Accounting, KPOs, SMEs, HR, Top 10s Editable Powerpoint Maps - India, North America, Rivers of India, Wine Regions, Demographic Maps, Tea Producing Areas, Monsoon Map of India, Book Summaries - Go Kiss the World , It Happened in India, In Spite of the Gods, India Express, India: From Midnight to the Millennium