India has 60% of the $150 bn outsourcing pie, it will maintain the market share

The complexion of business being outsourced to India from the US and Europe is fast changing, says Rohit Kapoor, president of US-based offshore BPO firm EXL Service Holdings. "Today, we are getting a lot of domain-specific, highend knowledge-based processes," he says. Mr Kapoor is also the co-founder of EXL Service, which has four service delivery centres in Noida and Pune. It has successfully executed over 140 business processes covering a range of products and services. In an interview with Sudhir Chowdhary, he discusses the emerging trends in the sector. Excerpts:

How's the outsourcing scenario in the US and Europe?

As you might be aware, many companies first created their shared service centres, then looked at outsourcing and offshoring. That long-term mega-trend still continues to play out there.

In fact, we are still in infancy of that trend. There are many questions that CEOs of the US and European companies have in their mind when they look at outsourcing. They want to understand the benefits, risks and impact of undertaking such an engagement. Many of the companies have now got examples in being able to see as to what other companies have done, what kind of benefits they have realised and what their experiences have been. They can see what some of their compebreastors and others have done.

A host of foreign firms have set up Indian bases or outsourced work to Indian firms to take advantage of a vast pool of computer-literate, English-speaking workers whose pay packets are a fraction of their Western peers.

What are the benefits that they have realised?

I think some of the companies which adopted this early on, have realised cost savings, quality of operations being much better, productivity gains. Most importantly, they have realised that outsourcing creates a very flexible work environment for them. They can scale up or scale down their operations, and they do not have to incur all the fixed cost that go along with creating the back-end service. These are only some of the benefits.

There are a lot of intangible benefits as well. These are when you look at outsourcing some part of your organisation, the rest of the organisation also becomes much more efficient. Unless and until they keep improving their efficiency and productivity levels, the outsourcing option is going to play in more and more heavily and will become a more real strategy that a CEO is going to deploy. CEOs of companies who haven't looked at outsourcing, are now looking at this trend seriously-in terms of which process to deploy and how they should go about the entire gameplan. Some of those which haven't outsourced as yet, are domestically focused and don't have an global presence.

Has the outcry over outsourcing IT jobs to India subsided now?

More or less. The protests made mid-sized firms more aware of the way big companies slash costs and boost profits through outsourcing. In a way, the outcome has been more positive than negative.

As for us, it did not have any impact on our business. The increasing interest shown by foreign small- and medium-sized companies was good news as they were not only likely to seek outsourcing of services, but also consultancy advice on systems. Also, the job scenario in the US has picked up and therefore concerns about employment have rapidly gone down.

What is the kind of market Indian BPO firms are looking at now?

The market size itself is huge. Of the total global market, the US market alone makes for around 70-80%. Various studies undertaken by McKinsey, Gartner, etc, say the total pie of outsourcing today in around $150-160 billion. This is the amount of work US companies have already outsourced to various service providers like IBM, Accenture or EDS.

That's not all what I mean by offshoring. Out of that $150 billion outsourcing pie which is expected to go up to $220 billion over three years, offshoring is expected to grow much faster that total outsourcing. That's because the domestic component of outsourcing is going to decline as a percentage. However, in aggregate terms and in absolute volume, it is still going to increase considerably.

India has about 60% of the total outsourcing pie and over the next three years, it is expected to maintain that market share.

Will we be able to maintain the compebreastive edge?

As far is ITES is concerned, the total manpower strength today is 150,000 and this is expected to go up to 1.1 million employees by 2010. If you look at our country wherein, we produce two million English speaking graduates every year, and it has a pool base of 80 million English speaking graduates available, getting 1.1 million employees to do ITES jobs will not be a major challenge.

So, on the ITES front, manpower and capacity is not a major hurdle. What needs to be done is proper recruitment, selection and training process. On the IT front, there is a constraint on the number of qualified people needed to perform specialised work.

What are the kind of processes India is attracting in the BPO segment?

In the initial period, there was a lot of data entry and transcription work that was given on the back-office side. There was also a huge amount of call centre work given in the initial years. Today what is happening is that the complexion of business being outsourced to India is changing. We are getting a lot of domain-specific back-office processes as well as lot of higher-end, knowledge-based processes. We are getting incremental business in this category.

As a result, for doing higher-end analytical, advisory and consulting work, the profile of professionals being recruited is much higher-technical education with an MBA or CA degree.