IT-BPO : An Emergning Trend Dharmendra Chourishi, Chanchal Kumar Buttan, Abhishek Chaurasia Abstract : Business process outsourcing has been a growing phenomenon during the last decade. The current trend continuing, and there is a shift also towards more complex and high-end processes to be outsourced. One of the emerging market areas is India, which is attracting offshoring decisions. One of the increasing areas of offshoring is Information Technology services; which is the most demanding in global market. Objectives of this research-in progress is to draw a picture of BPO in India, clarify concepts and provide check-list for Asian Information Technology field, which are looking for opportunities to integrate into Indian markets. Index Terms Outsourcing, offshore, BPO, KPO, IT, Global Market. I. INTRODUCTION Business process outsourcing (BPO) in context of India as a destination country of IT. The main reason for selecting India as a research target is the rapid growth of BPO segment in South East Asia during the last 15years, and especially the evolvement in BPO sector and rapid growth of Indian share of outsourcing decisions. There is a growing interest in Indian enterprises and governmental institutions to follow the market development in South East Asia region. Thought the outsourcing inside independent economies is not a new trend, and BPO in information technology sector has also formed the ways the companies worked for two decades, the speed of offshoring to South East Asian countries seems to be ever increasing. The focus of this study is to clarify the concepts of BPO and knowledge process outsourcing (KPO), see those in the context of BPO development [9], and to set the basis for the theoretical framework for future case study focusing on BPO market in India. The case studies of selected companies will result an itinerary checklist for the IT companies looking the possible business opportunities to integrate into Indian IT markets. Theoretical background for the research is drawn from the business process outsourcing theories published in latest articles. The used resources focus on Indian sources like NASSCOM strategic reviews [5, 6, 7] and in global context rely on statistics like EUROSTAT [1]. Business process outsourcing has been a growing phenomenon in economy. One of the starting events was when the Kodak outsourced its function to IBM late 1980 s [8], [10]. Sourcing and contracting in e.g. manufacturing has naturally existed longer. Study[3] points out the theoretical ground for outsourcing from theory of firm by Coase in 1940 s, also the phenomenon of job migration from US to Japan in 1950 s and -60 s, and to Mexico in -90 s, and recent development to China and India. A. Outsourcing II. RELATED WORK Different authors have different views toward outsourcing. Some define outsourcing as a cost-cutting tool; others relate outsourcing with the core competencies of the firms. According to Global Outsourcing Opportunity and Risk [11]. Outsourcing is defined as the contracting of one or more of a company's business processes to an outside service provider to help increase shareholder value, by primarily reducing operating cost and focusing on core competencies. Outsourcing practice has been moved from a niche technology management tool to a mainstream and a strategic weapon for many firms. Due to the ever-growing gap between supply and demand of technical talent, the business players are attracted to the vast pool of technical labor available overseas. It not only helps the firms to find the right persons for the right job, but also helps in cutting down costs, as the labor overseas is cheaper. Offshore outsourcing allows organizations to successfully overcome the worldwide shortage of qualified IT resources, providing their users with a competitive edge and critical time-to-market software solutions [b]. Intel, IBM, Cisco, Yahoo, Amazon or Oracle, there are many other giant names IT industry are looking forward for outsource to India for technological agility, quality, flexibility, cost control, time-to-market and competitive advantage. India is an important location and it is the only one in the developing world. B. BPO Framework Business process outsourcing has been researched a lot during the last 10-15 years. Business process outsourcing involves the actions of the organizations, where operations and responsibilities of specific functions are contracted to a third party service provider. Outsourcing of support functions like search, analysis, proof reading, reminders to the customers, pay roll, drafting and editing of documents, maintaining personal records of customers, research and development (R&D), all allows them to focus on their core competencies and remain profitable. It won't be wrong to say that in 10-15 years from now, service organizations may be outsourcing all work that is "support" rather than revenue producing to keep themselves afloat [11].The management needs to look at the business from a strategy perspective[11]. 72
Volume 1, Issue 2 Without these aspects taking up personnel and time, they could focus their capital and energy on other areas. Outsourcing has many benefits, including the fact that the outsourcer's job is to devote its resources to this one aspect of a business, be it financial or legal, etc. In general, this would mean that the service level would be higher. These outsourcers are providing a better service at a much lower cost than the company's costs in performing the function in house. Outsourcing gives these businesses the opportunity to provide much improved quality of service to their customers. Outsourcing participants identified five major trends in IT outsourcing: 1. More and more IT jobs will move overseas in the coming years. 2. More corporate giants are opening dedicated software development centers in places like India and Russia. 3. The gradual acceptance of Western intellectual property (IP) standards. 4. Offshore sourcing moves up the value chain. 5. Stratification of offshore countries based on cost and skill sets. The global outsourcing becomes a major outsourcing trend in recent years [12]. In the U.S. and European countries, outsourcing IT jobs to countries like India and China is already visible in the business world. Comparing India to China, India apparently has an advantage over China since it has English-speaking labor force. Chinese government has acknowledged this comparative disadvantage; therefore, it shifts its focus on manufacturing sectors, such as computer hardware and automobile industries [11]. According to the study, India is one of the fastest growing BPO markets in the region. However, the largest BPO country market is Australia, which is more than three times larger than India, the second-largest consumer of BPO services [4].In the past, these providers focused primarily on the international or offshore market. Some of the local providers include Omnia, Kenkei, Androemeda, Genpact, Magus, MphasiS, Intelenet Global Services, Tech Mahindra, Aegis, and HTMT. D. Objectives for the research-in-progress The main objectives of following study are to map the BPO markets in India, the past development, present status and future outlook, to provide insight for the methods for benefiting the business possibilities and look more closely to the value proposition of Indian markets. The special focus is set to IT industry, which is showing how quick this filed is emerging. E. When India got Recognition IT-BPO services outsourcing first started in India in the late 1980s. The large, English speaking, low-cost workforce was the main attraction. The industry grew rapidly through the 1990s aided by the dot com boom and IT upgrades to prepare for potential Y2K bugs. The 2000s saw similar growth with work moving to India in down cycles to help companies cut costs and in boom times to capitalize on the readily available talent. F. India is riding high on IT outsourcing Information technology and IT-enabled services will employ 4 million people in 2008 and account for 7% of gross domestic product and 33% of India s foreign-exchange inflows, according to Nasscom, an Indian IT industry organization. Forbes recently published some scary statistics on wage inflation in India. Salaries rose 15.1% in 2007, up from 14.4% the previous year. The 2008 forecast: 15.2%. This would be the fifth consecutive year of salary growth above 10%. C. Global Outsourcing Global outsourcing is enabling business without barriers in a borderless world. As enterprises think global, their outsourcing models have changed to follow suit. Outsourcing is no longer just a short-term quick fix to achieve cost reduction. Global outsourcing uses a blend of onsite, offshore and near shore outsourcing solutions to achieve strategic business objectives for the outsourcing company. Today, there are job titles like "Chief Globalization Officer" and "Strategic Services Manager" - which just goes to show that organizations are taking seriously the impact of global outsourcing on the revenue growth and business value of their companies. Fig 1: BPO market distribution The business process outsourcing (BPO) market in India will expand by 23.2 per cent in 2011 to reach a size of $1.4 billion, compared to $1.1 billion a year ago, a study by global IT research firm Gartner said Tuesday. The study also forecasts that the BPO market will grow to $1.69 billion by 2012 and $2.47 billion by 2014[a]. 73
III. ADVANCED IT SOLUTIONS PROVIDED BY INDIA Almost each and every section of IT, India is providing Outsourcing. These include, Application development, Application maintenance, Data center operations, Database administration, Desktop support, Disaster recovery services, Help desk services, IT security, Network operations, SaaS/Hosted Applications and Web/e-commerce systems. Fig 1 shows that major portion of market is captured by IT. As it is become the most demanding sector of global. Communication and services related sector is starching its wing too after finance related work. Quoting the report, website news says that the domestic IT services market in India is currently ranked third in Asia/Pacific region and is expected to develop to $15 billion by the turn of 2014. Fig 2 shows that cost paid to the Indians is lowest as compared to the other Countries. This is also a big reason to get the maximum project. IV. WHY INDIA BECOME FAVORITE FOR IT-BPO The driving forces that account for the increase in foreign investments through the BPOs in India are: Emphasis on quality services Skilled sets and workers Cost effectiveness Quality products English speaking manpower India is the leading country for offshore outsourcing. The offshore outsourcing industry started in India, it has been able to grow the IT, and BPO export sector to $47 billion and capture more than half the offshore outsourcing industry. That is not to say that India does not have challenges or is the best location for every offshore outsourcing effort, but it has an unparalleled history and size.the Americas and Europe are the largest customers for the Indian outsourcing industry and Account for 60 percent and 31 percent respectively IT and BPO exports. The largest vertical sectors are financial services (41 percent), high-tech/ telecom (20 percent), manufacturing (17 percent) and retail (8 percent). In 2009 the IT and BPO export industries employed about 2.2 million people. Fig 3: Indian Growth Rate These features of the Indian BPO industry attract Long-term contracts and as a result, there are high earnings which in turn result in major contribution to economic growth. As a matter of fact, the Fig 3. Showing the Indian growth rate increasing year by year in a regular ratio. After the recession of year 2009 & 2010, it reached its height again in year 2011 very quickly. Indian BPO industry is leading in the market and is improving in the area of training professionals in learning foreign languages and increasing the number of skilled workers. This will give India the ability to sustain its global leadership and probably generate export revenues of USD 10 billion by 2010. Fig 2: Cost analysis of call center services The following are some useful statistics with regard to the growth of the IT-BPO sector during the past 10 years [d]: 1997-98: US$ 4.8 billion 2006-07: US$ 47.8 billion Current rate of growth is 28% Employment to be generated -1.6 million V. IT-BPO COMPETITORS Despite slow-paced and fragile recovery of the global economy, the global outsourcing industry is estimated to post a decent revenue growth in 2010. The industry is estimated to earn revenue of $425 billion in 2010, up 13.9 percent compared with 2009, according to research and advisory form XMG Global[c].BPO Role in India s economic growth is set towards making a significant impact in the time to come as well.however, the estimated growth is lower compared to the 14.4 percent growth in the previous year. One significant feature of global outsourcing industry landscape in 2010 was narrowing revenue gap of China compared with the leader in 74
Volume 1, Issue 2 offshore destinations, India. China is estimated to close the year with a revenue growth of 30percent compared with 14 percent of India. However, India is projected to lead the market with expected revenues of $54.33 billion, occupying 43.7 percent share of the total revenue of $124.41 billion of all offshore destinations. India s weakening lead is due to the substantial efforts of China, the Philippines, and other offshoring destinations in building their capacity to attract significant amount of investment. While India continues to remain the leader, the rest of the offshore. VI. DRIVERS AND BENEFITS OF IT OUTSOURCING Outsourcing in various IT functions within a business has become nowadays trend with an obvious reason, specialisation as every company is enforced to concentrate on its core business function. Financial issue admittedly becomes the biggest reason heightening the needs of any outsourcing. In details, IT outsourcing is mostly driven by its tempting benefits: Rapid development in dynamic IT world Minimising / sharing risks in IT investment Lack of expertise in internal IT staff Waiting until the technology matures The need to focus on core business activities Cost reduction in operational and management VII. IT FUNCTIONS TO BE OUTSOURCED In the early days, companies only outsourced their minor tasks considering the size of the company and at that time, most of them concerned about their confidential data and privacy issues. Now, as privacy policy and confidentiality, issues have been addressed and companies have grown as enterprises, the trend move toward business functionality outsourcing. General outsourcing may involve the following [e]: Hardware maintenance (i.e. computer, printer, network) Programming (i.e. software contractor, in-house programming) Software maintenance (i.e. upgrades, updates, troubleshooting) Application analysis / business analysis User training Advanced outsourcing (ASP Application Service Provider) ecommerce CRM ERP applications VIII. POTENTIAL PROBLEMS IN IT OUTSOURCING Although outsourcing can be an instant solution for various IT functionalities, its existence has to be carefully planned, structured, agreed-upon and monitored along the ways of its implementation. Outsourcing is comprised by two or more entities with different interests. Here are the potential problems, which may arise in outsourcing following: Lack of experience in outsourcing Conflict of interests Dynamic IT requirements IX. CONCLUSION Companies looking to outsource their work to India need to choose carefully based on an analysis of their own needs. Are they willing to pay more for higher-skilled workers or are they solely looking at cost savings. In addition, when analyzing cost savings there are many variables that need to be accounted for. Outsourcing information technology has both pros and cons. If not properly handled, outsourcing can, instead of reducing the costs, actually increase the costs and negatively affect the bottom line. Outsourcing should not be imagined to be a panacea solution to all perceived IT problems. Consistent and continuing evaluation of IT operations and services are important. IT outsourcing is also a risky decision to most organizations. These risks arise due to the large project scale, the long lead times to complete the project and the potential loss of services across governments. Outsourcing should not be imagined to be a panacea solution to all perceived IT problems. Consistent and continuing evaluation of IT operations and services are important. REFERENCES [1] Alajääskö, P. (2009). International sourcing in Europe. Statistics in Focus 4/2009 EUROSTATT. [2] Chandrasekhar C.P. & Ghosh J. (2006). IT-driven offshoring: The exaggerated Development Opportunity. Human systems management, 25(2), 91-101. [3] Datta, S. (2005). Offshore Outsourcing- Building a Conceptual Framework. The 32ndAnnual Conference, Academy of International Business, UK Chapter: Innovation, Change and Competition in International Business, eds. E.J. Morgan & F. Fai, Academy of International. [4] FinPro (2008). ICT and Electronics sectors in India. Industrial report by FinPro Association. [5] NASSCOM (2008). NASSCOM Strategic Review 2008; the IT-BPO Sector in India. NASSCOM 2008 New Delhi. [6] NASSCOM (2007). NASSCOM Strategic Review 2007; the IT industry in India. [7] NASSCOM 2007 New DelhiNeoIT (2005). Mapping offshore markets update 2005. Offshore insight market report series volume 3 issue 8. NeoIT 2005. [8] Saxena, K. B. C & Bharadwaj, S. (2007). Business process outsourcing; for strategic advantage. Excel books 2007 New Delhi. [9] Sen, F. & Shiel, M. (2006). From business process outsourcing (BPO) to knowledge process outsourcing (KPO): Some issues. Human Systems Management 25 (2006) 145 155. [10] Sridhar, V. & Bharadwaj, S. (2005). Modelling the growth of IT enabled services in India.. 75
[11] In Dillon, G. & Jaiswal, M. (2005). Exploiting systems for organizational effectiveness. 76