2003: Year of the Indian BPO company
P.V. Kannan

P V Kannan, Co-founder of 24/7 Customer, urges indian firms to leverage their pricing with quality product offering.

IT'S BEEN ROUGHLY THREE YEARS SINCE THIRD PARTY independents began providing remote services offshore from India. The same industry observers, who in the early days laughed off emerging BPO firms as un-sexy, low value, and short-lived, now, along with a majority of Fortune 500 firms, recognize the promise of offshore outsourcing of business processes as an essential way that firms can keep competitive in both good times and bad.

" 2003 will be the year of the Indian BPO firm. Indian firms are poised to take center stage this year. "

Fortune 500 companies and India as a nation have both found BPO as their secret for success. With increased third party BPO provider maturity, Fortune 500 understanding and success with offshore BPO outsourcing, and analyst recognition, Indian third party BPO firms have positioned themselves to thrive. Unlike dotcom companies from the late 90's, Indian BPO firms have real Fortune 500 clients, real revenues, and real profits thus deserving the praise and hype bestowed upon them. The story doesn't end here. 2003 will be the year of the Indian BPO firm. Indian BPO firms will take center stage in 2003. Some of the key trends to note in 2003 will be amongst the following:

· Soft Economy Will Propel Further Growth - The continuing difficult economic climate in the U.S. & Europe will increase the demand for cost saving offshore BPO initiatives from the Fortune 500.

· Increasing Consolidation - We will witness an increased pace of consolidation in the BPO area whereby weaker players will windup or be bought for capacity while leading independents will be courted by publicly traded software services providers, existing clients, and/or existing US based outsourcing firms.

· Increasing Specialization - Indian BPO firms will move beyond out-tasking to true outsourcing of full processes including process improvement related actions.

· Brain Gain - H-1B holders/NRIs returning to India due to increased career opportunities will increasingly fill the need for management depth within Indian BPO firms.

Soft Economy Will Propel Future Growth

As leading western economists point to continued economic weakness and CEOs still see no improving prospects on the horizon, Fortune 500 firms will look at increased outsourcing as a way to remain competitive via cutting costs, improving quality, and remaining focused on core competencies. Less adventurous firms will move to outsource BPO services to India as success stories from GE, AMEX, AOL, Dell, Sprint, Fleet Financial, Citibank, Household International, and Greenpoint Mortgage in addition to glowing references from leading analysts at Gartner, Forrester, IDC, The Yankee Group, and Jupiter become mainstream. Pending any unforeseen circumstances (e.g. an India/Pakistan conflict), 2003 will mark the year in which companies not outsourcing BPO services to India are put under the microscope by shareholders instead of visa versa.

Increasing Consolidation

The "bar" for BPO success has been increasing each year and it undoubtedly will increase again in 2003. Indian BPO firms unable to show referenceable Fortune 500 clients, voice/back office experience, COPC certification, ability to successfully operate a multicenter operation, profitability, and analyst coverage will find it difficult to compete in 2003. It goes without saying that third party “pretenders” will face their day of reckoning. 2001 and 2002 saw savvy third party Indian BPO providers attract tens of millions of VC and private equity dollars. Underperforming BPO firms won't have access to these same investments in 2003 as investment firms have already placed their bets. The only option facing these cash-poor laggards will be selling their assets/capacity or winding up. Third party BPO providers able to meet this increased “bar” of success will either initiate consolidation by taking on capacity from underperformers or be the targets of acquisitions from stronger entities whether it be software services providers (e.g. Wipro acquiring Spectramind), existing Fortune 500 clients, and/or U.S. based outsourcing firms. While consolidation will occur, it will happen in an environment where surviving players find themselves facing tremendous demand and diminished pricing pressures.

Increasing Specialization

Fortune 500 firms that have already witnessed success with offshore out-tasking (outsourcing simple tasks such as data entry) to Indian third party BPO vendors now are looking to move more difficult processes and responsibilities (e.g. billing, mortgage processing, loan processing, global technical help desk, etc.) offshore. This drive will force a few things to occur:

· Existing Indian BPO vendors will develop dedicated internal practice groups that specialize in outsourcing specific complex processes. Examples of specific internal practice groups could be HR processing, transaction processing, or technical support.

· New specialist BPO vendors will emerge to service niche emerging opportunities. Such firms might specialize on specific operations related to collections, transaction processing, or data analytics.

Clients' desires for specialization have to be addressed by setting up individual practice units, each with it's own head, to ensure dedicated units specific to client interest areas such as customer service, telesales, technical support, and back office processes. Each practice area should further specialize with specific process teams. Without this specialization, purely “generalist” BPO vendors will face difficulties satisfying the Fortune 500's newer more specialized offshore outsourcing demands. Other Indian BPO firms will address this new client requirement by solely dedicating their whole firm to a specific process such as collections or billing. No matter which approach is taken, the increased ability for Indian vendors to provide specialized services will do wonders to grow our nascent but exploding industry.

Brain Gain

Third party Indian BPO vendors have long sought to hire experienced and capable management talent to expand their programs and internal operations. This talent has largely been lacking within India to date, but an increasing trend is emerging. H-1Bs, NRIs, and other expatriates have slowly begun returning to India to seek out opportunities in the growing Indian BPO industry. This influx of talent has come at just the right time to provide the needed management experience required to scale operations intensive firms. Watch this trend grow dramatically in 2003 due to the rapidly expanding top tier Indian BPO vendors.

The best is yet to come for Fortune 500 firms looking to outsource services and processes to India. The continued soft economy, increasing industry consolidation, increasing specialization, and NRIs/expatriates returns will serve to benefit the industry tremendously. All factors seem to be coming together at just the right time to provide the next wave to the services revolution, which Indian software providers began. 2003 will be the year of the Indian BPO firm.