Sonnet to Seat-Warming

Convening a CEOs’ conclave on IT Enabled Services held at IIT Mumbai
recently, the Professor Gaur -Professor Jacob duo put its finger on the pulse of
the challenges facing India’s fledgling business process outsourcing (BPO)
industry. How long will Indian companies be able to use wage arbitrage as the
only weapon to win new business? Is this going to be another flash in the pan?

There is no doubt that BPO has come of age in India after it enabled a
sluggish software exports sector to clock 30% growth in the previous year by
growing at a rate that was four times the rate of the traditional services
sector, albeit on a smaller base. And the potential is awesome, with the
worldwide BPO market size expected to double from its present level of $ 100
billion plus by the year 2005. Predictably, the Top Five segments in this
industry are both core and non-core functions, finance, human resources, supply
chain management, customer care and of course administration. As in the case of
IT Services where software migration and maintenance represent a fifth of the
total market, transaction cost minimization services like call centers and
payroll processing are only the tip of the iceberg with the real value lying in
the aggregation of multiple processes, managing workflow and optimizing business
processes rather than discrete tasks.

“The Top Five BPO segments include finance, human resources, supply chain management, customer care and administration”


Will that be easy in a market where incumbents like ADP and Convergys in the
processor space, Exult at the higher enterprise management end and the big boys
like PriceWaterhouse Coopers and EDS across the spectrum of services have firmly
entrenched themselves with most of the Fortune 1000 firms? This is one segment
where switching costs tend to be significant, given the intense process and
technology knowledge transfer that takes place over a multi-year engagement from
client to consultant and the multiple man years of painstaking effort needed to
build and hone proprietary processes and methodologies.

But the battle, though hard, is one that is well worth winning. Look at the
sizes of recent deals that have been signed — Exult’s ten year contract with
the Bank of America valued at over $ 1.65 billion, EDS’s $ 1.5 billion deal
with Xerox, IBM’s $ 1.4 billion 10-year contract with Cedant, CSC’s $ 3.3
billion seven year deal with Nortel and what is reported to be a multi million
dollar deal for eFunds from one of our very own Indian banks. All these and more
in the pipeline have the potential to make many software development contracts
look like rounding errors! Woe betide the greedy businessman who puts his loose
change of a few crore into a hundred-seat call center. And for the smart
clairvoyant CEOs who have the ability to stay several steps ahead and plan for
services that go way beyond cheap ‘bums on seats.’

And a final word on the methodology to make this happen! At a recent seminar
organized by the CII in Mumbai to focus on the IT needs of the SMEs in the
country, Sudhir Trehan, MD, Crompton Greaves rightly pointed out that Indian
manufacturing firms did not need highly priced global consultants and should
draw on the immense talent available in the IITs and other Technology
Institutions in the country. A three way partnership between software firms,
business process outsourcing startups and academic institutions would chart out
the future of consulting services that Indian firms can offer in future to
establish and sustain global supremacy in the outsourcing game. Are industry
players ready to close ranks against emerging global competitors?

Ganesh Natarajan is the global CEO of
Zensar Technologies, chairman of the Maharashtra Council of the Confederation of
Indian Industry and a member of the executive council of Nasscom

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