The prime driver for BPOs in India has always been cost effictiveness, but that differentiating factor is now fading away. Is Indian BPO industry finally headed towards the death bed? by Ashutosh Harbola
Survival of the fittest is a phrase that British polymath philosopher Herbert Spencer first used in 1864 after reading Charles Darwin’s work On the Origin of Species. Simply put, it meant ‘only the fittest organisms will prevail’; and the very definition of ‘fittest’ has also changed with time. Those who understood it did sustain and those who didn’t went into oblivion; be it in the living world or in the corporate terrain (time and again). In fact, if the latest signals are anything to go by, then the BPO industry could be one inevitable addition to the extinct list, as its cost advantage fritters away; which means it certainly doesn’t remain the fittest on that count.
A latest Nasscom report would indicate this very speculation as baseless. As per the report, the $50-billion IT-BPO industry is headed for a 13-15% growth in FY2010-11. But the recent survey by Pierre Audoin Consultants (PAC) seems to be a clarion call of sorts, since it is only the latest of a series of reports that indicate how India is moving away from being the epicentre of cheap outsourcing centres and nations like China, Vietnam, Philippines, et al, are becoming the most preferred spots to serve as offshoring centres. Only, the threat looks more real than it ever did in the past.
While Indian BPOs could complete an assignment at one-tenth of the compensation a few years ago as compared to their US counterparts, the difference today is marginal. The major contributor to this rising cost has been the wage inflation, which was hovering over 8% in 2009 and is expected to touch a steeper 10.9% by the end of 2010. “With time, India’s price advantage will continue to diminish; hence it needs to find a niche and continue to reinvent the business models, services and enabling technologies,” cautions Vishal Deep Dhillon, Regional Director – Asia, CSC.
Countries like China, Vietnam and Philippines are emerging as a big threat to India’s dominance in global offshoring industry. Thanks to the low cost advantage and heavy investments to promote English as a spoken language, China has witnessed a whopping 212% and 170.2% y-o-y increase in signed off shoring contracts (worth $12.69 billion) and executed contracts (worth $7.34 billion) respectively in 2009 when compared with 2008. Not only this, the dragon nation has also added an astonishing 3,287 enterprises and 5,85,000 employees to its outsourcing industry count in 2009. The Filipino BPO industry (with a growth rate of 19% in 2009) is also in a neck-to- neck competition with India. In fact, Philippines has emerged as one of the top destinations (with 15% market share) for outsourcing over the past few years; with revenues growing from $100 million in 2001 to $6.1 billion in 2008.
Survival of the fittest is a phrase that British polymath philosopher Herbert Spencer first used in 1864 after reading Charles Darwin’s work On the Origin of Species. Simply put, it meant ‘only the fittest organisms will prevail’; and the very definition of ‘fittest’ has also changed with time. Those who understood it did sustain and those who didn’t went into oblivion; be it in the living world or in the corporate terrain (time and again). In fact, if the latest signals are anything to go by, then the BPO industry could be one inevitable addition to the extinct list, as its cost advantage fritters away; which means it certainly doesn’t remain the fittest on that count.
A latest Nasscom report would indicate this very speculation as baseless. As per the report, the $50-billion IT-BPO industry is headed for a 13-15% growth in FY2010-11. But the recent survey by Pierre Audoin Consultants (PAC) seems to be a clarion call of sorts, since it is only the latest of a series of reports that indicate how India is moving away from being the epicentre of cheap outsourcing centres and nations like China, Vietnam, Philippines, et al, are becoming the most preferred spots to serve as offshoring centres. Only, the threat looks more real than it ever did in the past.
While Indian BPOs could complete an assignment at one-tenth of the compensation a few years ago as compared to their US counterparts, the difference today is marginal. The major contributor to this rising cost has been the wage inflation, which was hovering over 8% in 2009 and is expected to touch a steeper 10.9% by the end of 2010. “With time, India’s price advantage will continue to diminish; hence it needs to find a niche and continue to reinvent the business models, services and enabling technologies,” cautions Vishal Deep Dhillon, Regional Director – Asia, CSC.
Countries like China, Vietnam and Philippines are emerging as a big threat to India’s dominance in global offshoring industry. Thanks to the low cost advantage and heavy investments to promote English as a spoken language, China has witnessed a whopping 212% and 170.2% y-o-y increase in signed off shoring contracts (worth $12.69 billion) and executed contracts (worth $7.34 billion) respectively in 2009 when compared with 2008. Not only this, the dragon nation has also added an astonishing 3,287 enterprises and 5,85,000 employees to its outsourcing industry count in 2009. The Filipino BPO industry (with a growth rate of 19% in 2009) is also in a neck-to- neck competition with India. In fact, Philippines has emerged as one of the top destinations (with 15% market share) for outsourcing over the past few years; with revenues growing from $100 million in 2001 to $6.1 billion in 2008.
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Source : IIPM Editorial, 2010.
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
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