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BPO industry: Opportunities abound - Views on News from Equitymaster
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  • Jun 10, 2008

    BPO industry: Opportunities abound

    The business process outsourcing (BPO) industry in India has been in existence for a more than ten years now. In this short span of time, the industry has grown phenomenally and has become a very important part of the export-oriented IT software and services market. More importantly, it has developed into a broad based business platform backed by leading Indian IT software and services organisations.

    Currently, the Indian BPO industry is offering a wide spectrum of services to clients across the world - ranging from customer care, medical transcription, medical billing services and database marketing to web sales and marketing, accounting, tax processing, transaction document management, telesales and telemarketing, HR hiring and biotech research. Amidst of sub-prime crisis and the weakening of the US dollar (and subsequent appreciation of the Indian rupee), the BPO industry managed to stand firm on its ground during FY08. Even going forward, considerable amount of optimism prevails in the entire gamut of outsourcing arena, as companies have aggressive plans to fight margin pressure.

    Growth targets
    According to a study jointly conducted by IDC (a global technology research agency) and NASSCOM (India's industry body for the tech sector), over the next four years (2007-2011), global technology spend is expected to cross US$ 2 trillion, growing at a compounded annual growth rate (CAGR) of 5.6%. The BPO industry is expected to grow from a size of US$ 462 bn in 2007 (29% share of global technology spending) to US$ 677 bn (34% share) in 2011. The BPO industry in India, which currently employs 700,000 professionals and generates revenues of US$ 11 bn, is expected to grow at a CAGR of 38% over the next 5 years.

    In an important move to further chart out the industry's growth path, NASSCOM has conducted another study along with AT Kearney (global management consultancy firm) to identify location for further growth. As per this study, the top 50 locations in tier-2 and tier-3 cities across India have been identified as potential hubs for IT and BPO operations. Till now, the Indian IT-BPO operations have been concentrated to a few cities, thereby restricting growth to a certain level. As such, the new locations are expected to be the future epicenter of growth as cost and talent pressures will drive vendors to smaller cities at a faster rate.

  • Why is the BPO opportunity not worth missing?

    The domestic Indian stock markets is also anticipated to emerge as a vibrant market for BPO operations. Going forward, we believe that the BPO industry will see greater integration of software and business process outsourcing. This area presents a large opportunity for IT vendors. The opportunities are huge in this space, the only problem being that of supply (skilled labour). As a top management personnel of an IT company indicated to us sometime back, "We can easily grow at 40% YoY if we can add more people. But, where are the people?"



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