BPOs in Emerging Markets: An Action-packed Landscape

According to a recent report by Gartner, the Indian domestic BPO market is expected to reach the $1.4 bn mark in 2011, up 23.2% from 2010. The market is expected to grow into a $1.69 bn market by 2012 and increase to $2.47 bn by 2014. Factors like changing demographics, increasing affluence, and economic growth in Asia/Pacific continues to drive increased adoption of shared services and BPO culture. This can be witnessed in Australia, India, South-east Asia, China, etc.

The BPO landscape was witness to significant consolidation both in the regional and global markets in 2009 and 2010 with significantly large mergers and acquisitions taking place. One of the drivers for consolidation was the reason that the BPO space jumped the global way a few years back and is expected to continue. With customer demand moving towards integrated IT-BPO play, some pure-play BPOs were seen adopting M&A route to become full-service players. However one of the clear trends that emerged over the years for BPOs to stay competitive is the opportunity for BPOs to innovate and reposition themselves as technology enabled solution providers instead of just process-driven service providers. By virtue of delivering processes over a period of time, BPOs have the unique advantage of being able to take processes, create disruptive innovations using technology, and deliver them using operational expertise. Then they no longer remain a pure BPO by definition, says Bharathwaj V, chief marketing officer, 24/7 Customer.
And along with the growth story of BPOs there is a hypothesis that

BPO companies are now turning their guns to the emerging economies as a delivery center and a market. It is highly felt that this may not be a tectonic shift in terms of business moving to such emerging destinations, it does present itself as a unique opportunity for service providers. How far this statement is true is what is under the scanner.

The Hypothesis

As the traditional markets like the US and UK mature, more and more Indian BPO companies are considering opening up delivery centers in the emerging markets like Philippines, Middle East, Poland, etc, which offer incremental growth. Factors like scalability, clients demanding onshore or near-shore presence, the infusion of new processes and technology are the major reasons for BPOs to set up delivery centers in the emerging economies that could serve as possible markets.

Also, having an onshore presence is an imperative criterion for customers in the BFSI, telecom, and healthcare sectors, as firms are required to carve out and take over a part of their clients operations. At such times, customers appreciate if they reckon that the service provider can grow and adapt to the customers future demands and needs. While this is being touted as a reactionary action to increasing anti-outsourcing sentiments such as protectionism, regulatory constraints in geographies like US and Europe, clients are now also considering this step for tapping local clients and business opportunities, feels Susir Kumar, CEO, Intelenet Global ServicesA Serco Company.

Intelenet, which is one of the movers in this segment, soon after its acquisition by Serco Group Plc, forayed into the Middle East market. The company opened a 200-seat outsourcing facility in the Dubai Outsource Zone (DOZ) in Dubai to offer multi-lingual capabilities in English, Arabic, Hindi, Tagalog, etc. Even Genpact recently opened its 80-seat delivery center in Dubai as a licensed partner of DOZ. This center would cater to business process services such as claims processing, customer service, collections, treasury operations, finance and accounting, analytics, and risk related services for clients in the Middle East and North Africa. The company intends to develop this center into one with an employee strength of 500 in the next three years. The center will deliver business impact through the companys uniquely scientific Smart Enterprise Processes framework, and will also help its clients make smarter business decisions through its Smart Decision Services comprising analytics and research, and assist in re-engineering and risk management.

For companies like TCS BPO Services, over 20% of its revenue is generated from India where it has its largest delivery presence, and in South America where the company has a significant delivery presence and other emerging markets in Asia and EMEA. With its Global Network Delivery Model (GNDM), TCS has established a strong presence across the globe while also ensuring excellent service standards.

With the intention to pullup its socks from its operations in Africa, Tech Mahindra zeroed in on Nigeria as the headquarters of its BPO operations in Africa. In the last few years, Tech Mahindra has partnered with leading telecom operators in Nigeria, like MTN and Multilinks. It has bagged a deal with Bharti airtel Africa for setting up airtels BPO operations in 7 countries.

Apart from its eyes on the UK and European market, Aegis made strong moves in the emerging markets after inaugurating a 3,000-seat BPO building in Cebu. Emerging markets have been of interest to Aegis for last five years. Our ethos has been to address local market as aggressively as we would provide services to offshore clients, says Anil Modi, global head, marketing & strategy, Aegis. Aegis Philippines started like others in the industry focusing primarily to be offshore location to US clients. With the focus to develop local market, Aegis has won deals to have more than 1,000 people supporting domestic Philippines market, he adds. South Africa is another market where Aegis was largely serving UK market but now, it has significant domestic market presence.

Also, Japan is a $110 bn outsourcing market, with an offshoring rate of 8.5%. Out of this, 55% goes to China and 15% comes to India. In 2010, we signed a joint venture (JV) pact between JR Kyushu System Solutions Inc (JRQSS), the IT systems arm of Japans Kyushu Railway Company, to allow the new company to respond effectively to the unique needs of the Japanese customers. We also opened our China center in Suzhou last year, which will focus on delivering development and support services to cater to Japanese, US, European, and local multi-national corporations, informs Sanjiv Kapur, global head, BPO & CIS, iGATE Patni.

Under the Scanner

The global financial crisis was a wake-up call for the market that forced many to re-look their business models and de-risk heavy reliance on the traditional North American market and in the process be prepared to better manage similar market fluctuations in the future. Financial crisis led to the exploration of new shores like Japan, France, Germany, Russia, China, etc, which had largely remained unexplored owing to geography and demography related reasons. This movement though reflects that there still are huge opportunities to tap and leverage in the English-speaking countries. BPO players are globalizing and investing in delivery capability in the emerging markets.

Amidst the economic downturn and chaos, onshoring definitely looks like an attractive option. But businesses need to understand that no strategy can work in isolation. Neither offshore or onshore, is superior to the other. Both of them offer their advantages and disadvantages, based on particular objectives and goals for various projects, feels Kumar.

This wave of movement to the emerging economies has brought with it a bag of advantages, namely:

• Higher Quality of Manpower: Quality of manpower available is the most important advantage of having an onshore presence. With access to a talent pool with an awareness of local customs, needs and business environment, ensuring high quality of customer service levels becomes easy.
• Stronger Team Collaboration and Integration: It minimizes communication problems and improves the product-development process.
• Proximity and Common Time Zones: When an outsourcing firm is within a short plane flight, face to face meetings are more frequent, communication is enhanced, and outsourced projects benefit from a more iterative development process. Trips to far away locations are neither convenient nor economical, which discourages face to face interactions, relationship building, and the growing of a common culture.
• Opportunity: Provides immense opportunities due to saturation in mature markets like North America and Europe.

While North America will continue as the major market, Europe and some of the emerging geographies have seen good traction over the past few years. Particularly in Europe, iGATE Patni closed a large multi-million pounds deal with a UK based services provider last year. India can be attributed as the fastest growing BPO market in the Asia-Pacific region. It has been noticed that over the last three years, many established players have started concentrating their efforts on the India domestic market. Domain-led offerings are still to gain that level of maturity. We are closely tracking the domestic market and have seen traction in areas of help desk, F&A, and BFSI. To address India market potential, we have focused India team who go after opportunities in the Indian market, elaborates Kapur.

In Support

Emerging economies in recognition of this trend are taking numerable measures to boost this trend. Governments in India, China, Philippines, Eastern Europe, and certain South American countries have been most proactive. They are not only building the required infrastructure but also creating special economic zones, transport and communication infrastructure, and an industry-academia interface that improves the employability of the population for business process services.

Due to the emerging anti-outsourcing sentiments and more socio-economic pressures, many countries prefer onshore outsourcing in a bid to save the looming loss of jobs. On the other hand, as offshoring is laden with hidden management problems and subsequent costs that translate into headaches and sometimes nightmares for customers, informs Kumar.

Countries are, however, now setting up special outsourcing zones to provide a comprehensive purpose-built infrastructure to both captive and non-captive companies intending to set its foot in the region, control costs, and gain efficiencies by leveraging on the talent pool, technology, and expertise in the local regions. In order to offer a good mixture of relevant experience and business environment, developing markets should create situations that offer relaxed regulatory systems (tax breaks/holidays), structured bureaucracies, state-of-the-art technology, and skilled labor. Various organizations like NAFRICOMthe African equivalent of Nasscom, telecom support mechanism in Africa were set up to boost the movement.

The support provided by the Government of India in terms of telecom infrastructure and tax export friendly tax policies in the past has been well received in the Indian market. If there remains one potential area for improvement its the investment in infrastructure, which is also catching up albeit at a slower pace, shares Abid Ali Z Neemuchwala, vice president, global head, BPO services and process excellence, TCS .

Advantage India

Concentration on the Indian market is proving beneficial to BPOs in more ways than one. The reasons for this turnaround could be attributed to certain advantages like cost effectiveness, cheap labor, deeper understanding of the Indian businesses, and their requirements with a great flexibility, improvement in the state-of-the-art infrastructure, and hi-tech communications.

Growth of BPOs in tier-2 and -3 towns is helping service providers deliver services at much lower costs and is also generating employment in the rural segment. Rural BPOs will be an excellent fit for non-mission-critical/time-critical business processes and have the power to tap into new areas.

There are other companies like Aegis that are already there on the scene and have tasted success in launching and scaling up operations in tier-2 and -3 towns like Hazira, Srinagar, Lucknow, Jamshedpur, and Bhopal. Such centers are expected to control migration and ensure that there is reverse migration to an extent.

With the trend of rural BPOs catching up, we are doing a pilot with a rural BPO for some of the internal HR processes. It has rural and marginal farmers working. Upon successful completion, we will look towards expanding the scope also. This is a great initiative to generate employment opportunities in the rural segment also, informs Kapur.

On a final note, it can be said that the winds seem to be blowing in the direction of the emerging economies with much left to these countries to benefit from it.