Could The Indian BPO Sector Be In Trouble?


Apologies for the extremity of the title because the premise could be a one-off anomaly. However, there is something fundamentally missing from the Indian BPO sector that could halt the growth of the sector in the times to come.

A UK based company has stopped outsourcing its work to an Indian BPO (Mumbai) and is rather setting up a BPO in UK (Burnley)

This piece of news caught my eye and left me wondering what could have been the reasons. The article sights that the UK company did a cost-benefit analysis and found that outsourcing its BPO operations to India were not resulting in any significant cost savings. The company found out that running a center from UK promises them similar savings and better efficiency in terms of native language support etc.

The whole cost angle actually does not come as a surprise. The real estate prices have been rising in India and so are employee salaries. It is evident that the BPO operators are feeling the heat and they must be absorbing the increasing operating costs by hiking their prices. This makes it challenging for Indian BPO providers to provide services at reduced cost.

Additionally, regions like Philippines have fast emerged as effective alternative destinations for BPO operations what with superior English speaking levels and better time zone support. In lieu of the increasing competitive market, I wonder how a large number of BPO providers will be able to continue providing services.

True, the UK company pulling the plug on a BPO contract should not raise the alarm bells for the sector as a whole. Large BPO players are concurrently setting up operations in Philippines, Indonesia to counter the competition, Tier-2 and Tier-3 cities are being considered for setting up operations to avoid the high real estate costs.

So, there is no cause of worry and India will remain at the forefront of BPO marketplace even in the times to come. I so hope it does but could it be that BPO providers have not evolved from a market positioning standpoint

Low Cost Is No More A Value Proposition For Outsourced Operations

Outsourcing and Cost go hand in hand. The basic premise of outsourcing continues to be driven by significant cost savings as compared to doing the work in-house. India was quick to capitalize on the outsourcing opportunity since it could offer similar services at marginal costs as compared to say US or UK. Reasons? There was a sizable cost advantage for companies even as they became the poster child of job market by providing high salaries (as compared to traditional jobs then).

Come to the present and the tide has turned. Competition is driving the prices, attrition is high and the cost advantage is slowly but slipping from the BPO providers. So, where could have they failed? Providing value over and above cost is where the BPO providers seem to have lost the way

Sample this –

"The average handling time in the UK is three minutes. But if you go out to India, you need to add another minute unless it’s a very efficient operation, so that means we can actually reduce the headcount with the saving".

This is a statement from the chief of the UK company in the context. To a certain extent, having native language support could save time but with the kind of maturity in the Indian BPO sector, shouldn’t the average handling time had become comparable already. Additionally, why haven’t the BPO providers considered adding a much more sell-able value proposition other than the cost advantage alone?

Contrast this with IT service providers and I think the industry has been quick to respond to the evolving marketing conditions. Product focus, verticalization, high-end consulting services are some of the value proposition strategies IT companies have adopted to sustain. I might be ill informed but I haven’t read any change in value proposition coming from BPO providers!

What are your thoughts on the BPO value proposition in India? Do you think the BPO providers need to move away from traditional and improve their value proposition?

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