It’s time to take domestic calls!

15 languages, a huge non-English speaking talent pool, the changing semi-urban and global economy, lower infrastructure costs, low labor costs and a booming domestic sector make for an interesting mix. By Subhankar Kundu

Last year, the impact of the economic meltdown saw major cost cuts across large and small organizations, a high volume of lay-offs across the world, Lehmann Brothers crumbling into bits and pieces, a xenophobic stance being adopted by the workers’ unions in the developed countries’ and a hue and cry over US president Barrack Obama’s remarks against outsourcing. The world witnessed the crisis and maybe, for the first time (if we overlook the dot com bust in 2001-02) the Indian IT and BPO sectors realized the possible backlash of over-dependency on UK and US clients.

The road remained straight but a bypass was built that leads to the destination called growth. The plan to win more and more US and UK clients wasn’t tweaked a bit, recession or no recession; impact or no impact. But, the bypass was built into the plan by bifurcating it with greater focus on domestic turf.

Focusing on domestic outsourcing

Major first-line BPOs like Firstsource, Aditya Birla Minacs, HTMT Global Solutions, Aegis and Mphasis have won a good number of domestic accounts and have been servicing them quite effectively. However, companies like 24/7 Customer and WNS are yet to get into this new avenue though they don’t completely rule out the possibility in the future.

IT-BPO trade body, NASSCOM put this trend into perspective saying that there was no clear mandate as such on moving into domestic turf but certain companies have recorded a considerable number of wins in this sphere.

Raju Bhatnagar, Vice President, NASSCOM observed, “Both are very different markets. The domestic market base is much smaller as compared to the international market base leading it to achieve higher growth in percentage terms. However, both markets offer immense opportunities to be tapped.”

“The Indian BPO industry has grown and matured phenomenally over the last decade. It has evolved from offering basic voice-based services to high-end knowledge-based services. However, the BPO industry will continue to serve both the lower and higher ends of the knowledge spectrum. Going forward, BPO will contribute immensely to the overall growth of the Indian IT industry,” added Bhatnagar.

Changes are a coming

The NASSCOM-McKinsey ‘Perspective 2020’ report suggests that several global megatrends in economic, demographic, business, social and environmental will create new opportunities for the IT-BPO industry by 2020 in newer verticals like public sector, healthcare, media and utilities which have adopted global sourcing only to a limited extent. The report further indicates that small and medium businesses (SMBs) will evolve as a significant market segment from a revenue generation perspective.

Moreover, domestic clients are now increasingly becoming part of the global economy by outsourcing even the minor operational competencies to a specialized player. The focus is mainly on quality, cost, customization, end-to-end solutions, proximity, and availability of talent pool, recruitment and training facilities as a major differentiator.

The dependency on the UK and US will also shift a bit into new geographies like Brazil, Russia, India and China (BRIC), GCC, Japan and Rest of the World (ROW).

Milind Godbole, President of Operations - Asia Pacific, Aditya Birla Minacs, said “Companies will increasingly look at moving into the domestic market. The growth in the domestic sector will be higher compared to international processes. But, the major portion of revenue will be generated from international clients considering the dollar value.”

Bhatnagar added, “There are encouraging signs of economic activity picking up. Technology firms are back on a hiring spree and mergers and acquisitions are in sight. As per our projections for the current financial year, the IT industry is likely to grow at 4-7% but starting from April next year we see double digit growth coming back. Rural BPO is also emerging as a big growth opportunity.”

The strategic entry into the domestic outsourcing market in India has begun to yield results by focusing on areas that are traditionally considered weak in the domestic BPO sector such as service quality results.

In terms of spread-out, almost all new facilities are coming up in tier 3 or tier 4 cities to tap a ready pool of low cost resources well-versed in vernacular languages.

Early movers

Partha De Sarkar, CEO, Hinduja Global Solutions, asserted, “We were one of the very few BPOs to explore the domestic market back in 2005. This strategy has worked for us and today more than 15% of our revenues come from the domestic market. These services are spread across voice-based inbound and outbound activities spanning the entire customer lifecycle from origination to retention.”

Chandra Iyer, Executive Vice President - Asia Business Unit, Firstsource, said, “In terms of our industry trends, we largely see a lot of activity in the telecom and media sector in the country. Established players are increasing their presence into newer circles as the deepening of the market is happening. A large part of the future growth of the existing telecom players seems to be coming from newer markets which are deeper in the country and more like rural markets.”

Raj Patil, President, Business Process Outsourcing Business Unit, Mphasis, said, “A client is a client in whatever geography this may be. Indian companies today are leapfrogging ahead of peers in other parts of the world. For us the client and the business challenge is most important rather than where the client is based. Of course we have to be sensitive to local market needs such as pricing, cultural sensitivities and other such requirements. That apart we provide the best solution to clients here.”

Smaller cities, bigger dreams

With the industry maturing, it is vital to expand the geographical spread of BPO growth to low-tier cities to ensure balanced economic development, lower migration across cities and reduce the burden on the stretched infrastructure in the current hubs.

Firstsource entered the domestic market as late as 2007. Prior to this, the company served only US- and UK-based clients. At present, it has a couple of centers in Trichy, and one each in Siliguri, Vijaywada, Indore, Bhopal, Jallandar, Hubli, and Bhubaneshwar.

Aditya Birla Minacs runs its domestic processes from cities like Aurangabad, Baroda, Kolkata and Chennai. Minacs is also planning to open centers in tier-II and tier-III cities like Ranchi, Kharagpur, Anand, Bhilwara, Ahmednagar, Nasik, Nande and Patna.

“Most companies that are currently not focusing on the domestic market will have to consider it. The Indian domestic market has a large business chunk which will sooner or later be outsourced. They won’t have a choice one year from now,” asserted Godbole.

Sarkar observed that the costs come down significantly while operating in tier 2 and 3 cities. He said, “Search for vernacular language talent makes this industry more spread out across India. Especially attractive are tier 2/3 cities, with a view to keep costs under control. Wages in these cities are about 25-30% lower than in tier 1 cities resulting in substantial cost arbitrage. “

For players looking at large scale opportunities in the domestic market, this means managing a range of complexities. Additionally, maintaining margins can be challenging. This has led to providers exploring tier 2/3 cities where they may face challenges in terms of local infrastructure.

“The abundance of educational institutions in many tier 2/3 locations and the option of working with a hub-and-spoke model is a distinct plus. Quality Service Delivery by way of a well managed cost structure, good people management and value creation will be the driving factors here,” said Sarkar.

The Indian market is critically important for MphasiS as it has certain services and capabilities for clients as well as an intelligent client driven pricing model.

Patil stressed, “Over the years, MphasiS has expanded its presence in key tier 2 locations across the country. Currently MphasiS runs its domestic BPO operations out of Indore - Madhya Pradesh, Mangalore - Karnataka, Ahmedabad and Vadodara - Gujarat and Pudducherry – Tamil Nadu.”

Domestic business continues to grow for Aegis which has primarily been focusing on the domestic sector.

Aparup Sengupta, Managing Director and CEO, Aegis Limited, said, “We are currently present in over a dozen locations in the country, including centers in Lucknow, Coimbatore, and are looking at expanding to tier 2 and 3 cities. Some of the places we are looking at are Jamshedpur, Bhopal, and Srinagar. Our domestic operations have the capability to function in 24 languages and dialects.”

Sengupta continued, “The challenges for companies in the domestic space are the ability to demonstrate cost leadership in an economy that is price sensitive; ability to offer services in multiple languages covering the length, depth, breadth of the country and the capabilities to work at various touch points to offer a better customer experience.”

Major Sectors

Major wins came from booming sectors like telecommunications, banking and insurance, retail and government domains. Strong foundations have been laid to grow this business line profitably in the coming years. The reason that these companies got into the domestic market is because it acts as a hedge to their global business.

“We are seeing a lot of traction happening in the insurance sector, particularly in the BFSI segment and government, there are discussions around a lot of potential servicing in the government sector, although so far the large deals we have seen are all more ITO type of deals rather than BPO type of deals,” asserted Iyer.

Patil pointed out at the same sectors saying, “MphasiS has always been present in India. Our presence is strong and we work with customers in industries such as BFSI, telecom and government.”

The domestic BPO market offers huge growth opportunities with a target of $16-19 billion by 2012, with significant business growth coming in from sectors like BFSI, telecom, media, and retail and government sectors. With 15 major languages spoken in various parts of India, having multi-lingual capabilities becomes necessary to serve the domestic market.

Throwing light on the future, Sarkar emphasized, “The absence of a clear value proposition for domestic buyers is a major deterrent to the market’s growth. Providers need to communicate their value proposition better, especially due to the lack of arbitrage-driven proposition for domestic BPO. India is not a homogenous market. It has multiple regional languages and varied cultures.”

subhankar.kundu@expressindia.com