BPO: Slow Growth, But Maturing

The BPO industry in India had a tough year with an overall growth of around 6.8%. At `76,532 crore, the industry is still heavily weighted towards exports of nearly `63,000 crore. In part, the domestic market is fragmented and unorganized, operating under very different dynamics in terms of resourcing, process capabilities, quality consciousness, and most other metrics than global BPOs.

The market dynamics for global BPOs is undergoing change in terms of smaller deal sizes, complex processes, outcome based pricing and delivery, and integration of substantial amount of technology into business processing. Service providers are therefore aligning themselves to integrate more technology to be able to deliver better business value beyond mere cost savings. Just like in IT services, the top Indian BPO companies have distinguished themselves in delivering complex processes through process engineering and technology.

FAO: All Signs Suggest Maturity

The global Finance and Accounting Outsourcing (FAO) market echoed success in 2010 with 18% growth (ACV). However, in 2011 this growth diminished when the market grew by merely 11% (ACV). The year 2012 is expected to bring along a positive wave of prosperity as the FAO space is projected to rebound by 10-15% (ACV).

According to a new analysis titled Finance & Accounting Outsourcing Annual Report 2012 by Everest Group, "The multi-process FAO market is projected to rebound by 10-15% and top $4-4.5 bn in annual contract value (ACV) in 2012. 2011 saw the market reach an all time high in contract extensions that along with contract expansions, represented 70% of ACV growth in 2011."

The FAO market reached $3.8 bn in ACV in 2011, representing about $32 bn in the total FAO spending. Last year also witnessed a drop in total contract values (TCV) of new engagements in comparison to 2010.

Abhishek Menon, research director, Everest Group explained the slow growth rate of 2011 is not a sign of worry but a sign of movement towards maturity. He highlighted, "The key reasons beyond the ‘denominator effect' are reduction in new contract signings, reduction in average size of new multi-process FAO contracts, and risk-averse phased approach to FAO."

In 2011, 72 new contracts were signed and there were 126 extensions/renewals. The study predicts organic growth to continue as contracts valued $7.3 bn or more are up for extension within the next 3 years.

Saurabh Gupta, vice president, Everest Group, articulated, "Although the market witnessed slower than expected growth levels last year, we nevertheless saw strong growth with nearly 200 contracts for new, extended, and renewed contracts. Along with fewer new contracts signed and some terminations, we also saw a drop in size of multi-process contracts largely due to cautious buyers opting for risk-averse phased approaches."

Last year 60% of fresh FAO contracts were signed by companies in the revenue bracket of less than $5 bn. Accenture, IBM, and Genpact continue to have the strongest foothold in this space. However, as per the same report, in the last 5 years, the market share of the top 3 providers has reduced from 65% to 50%. 2011's highest new contracts had Accenture, Capgemini, and Infosys.

Contact Center Outsourcing: Growth Continues amidst Turbulence

2011 was the year that sparked some new transformations. This year is probably going to be even more interesting as we see the impact of all these combined forces coming to fore-technology advancements, integration of multiple communication channels, the power of analytics, and the social media puzzle. In fact, recessionary fears might pave the way for outsourcing growth, as enterprises look at optimizing the cost of servicing customers, and at the same time increase their focus on improved customer experience.

A notable change over the last year is the way in which contact centers are transforming themselves to become a more strategic part of an organization rather than just being a seen as a ‘call center'. The idea is to attract and retain customers by offering them the right type of experience, irrespective of what communication channel is being used. This might call for some investments in the short run but can also go a long way in building customer loyalty and brand image.

Krishna Baidya, industry manager for ICT, Frost & Sullivan APAC, reveals, "End customers still value speed, accuracy, and ease of use, but they added a few elements: The convenience of performing ever more complex transactions on the go, personalized service at every instance, and seamless movement among various channels with a consistent experience at each." The emergence of non-voice channels and automated technologies have taken customer care interactions to another level and the expectations have never been this high.

Analytics Outsourcing: The Science behind Data

The players in this market space can be categorized in 3 divisions. One is the global outsourcing major: IBM, Accenture, Capgemini, TCS, Infosys, Wipro etc, the second segment is pure play BPO providers, though they are not many of them left now like: WNS, EXL, and the third one is business specialist, these are very few. In the last category, the question is to what extend will they continue to operate on their own vs on being acquired.

Analytics outsourcing started as financial and marketing function. Shipping and logistics, manufacturing, supply chain, etc, were initially not very active in this space. However, now they offer good opportunities. Web and web related services and package solutions that mix combine consulting services with delivery are very much in demand.

According to Nasscom and AbsolutData Research and Analytics study titled ‘Marketing Analytics-An opportunity for India to Lead', the Indian marketing analytics industry is expected touch $1.2 bn by 2020 from $200 mn at present. The analytics market is growing at a remarkable rate of 25% y-o-y. Anil Kaul, CEO, AbsolutData, said, "Marketing analytics is an exciting opportunity for Indian players and for India. Also, as we spoke with clients and thought leaders in the US and Europe, it became apparent that India has a leadership position and is well ahead of the curve in marketing analytics. Given that the industry is abuzz with big data, this report gains additional importance, since marketing is one of the first functions to adopt big data into its daily functioning."

HRO: From Cost Savings to Strategic Advantages

The traditional belief that Human Resources Outsourcing (HRO) is simply a measure to reduce the burden on HR is changing and the strategic significance of HRO is being acknowledged more and more. The global HRO market retains its optimism, very much the way it did last year. But things are definitely not going to be the same, as the market continues to evolve under the influence of some significant changes-changing employee demographics being one of the most significant.

The global HRO market retains its optimism, very much the way it did last year. But things are definitely not going to be the same as the market continues to evolve under the influence of some significant changes.

Of all the forces acting together, 2 primary forces are driving global HRO ahead in these tough times-HRO becoming a strategic initiative for enterprises and HR service providers coming out with new technology innovations. Targeted for multinational companies for a long time, HRO is now attracting interest from mid market enterprises as well and this is going to be a strong catalyst for growth in the coming years. Also, the concept of employee engagement is going to hold a lot of significance.

Wile the overall HRO market grew at a healthy rate, the MPHRO grew by a modest 2% to reach an annualized spends of $3.12 bn in 2011. The M&A and partnership environment continue to play out in the market place.

Industry-Specific BPO: Being Explored Aggressively

Enterprises in almost all verticals are currently going through a tough phase, plagued by mounting cost pressures and customer expectations. What they need is a unique solution tailor made to their problems-a generalized BPO offering from their service providers is not going to work anymore. As the situation prevails, an increasing number of enterprises are exploring industry-specific BPO opportunities to drive better business outcomes. According to Horses for Sources research, there are strong signs of increased adoption of industry-specific BPO solutions, most notably in financial services and life sciences, and many other emerging verticals.

PO: The Expanding Scope of Contracts

Growth in 2011 was pretty decent with a 14% growth in annual contract value, which crossed $1.6 bn. According to Everest Group's Procurement Outsourcing Annual Report 2012, 60 new multi-process PO contracts and 53 renewals/extensions were signed in 2011, which is the highest ever until now. Everest predicts that the global PO market will reach an ACV of $1.8 bn in 2012, representing managed spends of $250 bn.
In 2012, end-of-term activity will be significant as 57% of PO contracts, valued at nearly $6 bn are up for renewal within the next 4 years. The adoption in 2012 will be led by companies with revenues over $1 bn while adoption by small/medium-sized businesses (SMB) segment will remain sporadic. This year the adoption in the public sector is expected to grow.