D. Murali and S. P. Srinivasarangan

Chennai: The last few years have seen the Indian BPO (business process outsourcing) industry ride the offshore wave to its advantage, both in terms of business as well as employment opportunities. However, with the current slowdown in the US (a geography which the Indian BPO industry has been overly dependent on), and the issues relating to sub-prime that one has seen over the last 18months or so, it was natural to believe that the industry may be in for a rough time, in the days ahead, with a negative impact on growth and hiring.

Mr S. Vaitheeswaran, Vice President and SBU Head, Infosys BPO views the situation slightly differently and actually sees enough opportunities for growth, as the industry looks to go further up the value chain with new business and delivery models.

“The innate nature of the IT and ITeS industry is such that the size of the pie is a growing one. While North America has got widely exposed to IT, the same is not true of other regions of the world, such as Europe, Japan and APAC. There is an increasing awareness that one has to stick to the core activities and hive off the non-core ones to players who specialise in those activities. The other advantage in the process is that what is non-core to a company is core to the service provider, and hence there is a lot of scope for value addition in the performance of the non-core activities.”

He is also of the view that the emergence of ‘shared services’ as a viable delivery model is a significant catalyst to creating business value in the BPO space. In this exclusive interview with Business Line, Mr Vaitheeswaran shares his thoughts on a range of subjects relating to the BPO industry.

Excerpts from the interview.

How has the Indian BPO industry evolved over the last 5 years and what kind of transformations have we seen?

Several areas, really! From a maturity standpoint, the last few years have seen the Indian BPO industry reinvent and emerge to play a significant role in client business strategies. The emergence of newer pricing models (value-based, gain-share), innovative business models (platform-based BPO), global delivery models, expanded BPO services (knowledge process/legal process outsourcing) has started transforming the BPO landscape.

BPO providers are expected to play a greater role in enhancing the client’s business value and work as ‘Trusted Transformation Partners’ in their outsourcing initiatives.

At the client end, companies in order to maximise their transformation objectives have started to outsource their IT and BPO functions together. As opposed to discrete outsourcing, they are now beginning to reap the benefits of function-led outsourcing. We are also seeing a rise in outsourcing engagements in the finance/procurement space as a result of this mature approach.

As the outsourcing industry matures, the demands on core non-voice processes are seeing a greater share in the overall share of the industry revenues. However, voice-based support will continue to play a significant role in the overall outsourcing strategy and continue to be a key contributor as opposed to a standalone offering.

The emergence of shared services as a viable delivery model is a significant catalyst to creating business value in the BPO space.

After years of consistent growth, it seems the industry may be in for tough times: margins under pressure, and clients pulling back or not expanding as previously expected. What is your view on the survival strategy for the offshore BPO companies? Do you expect a shakeout in the industry?

Every industry goes through its cycle. It is the maturity of any organisation that enables it to mitigate the impact of such business cycles by offering a global delivery model and modular outsourcing. This implies that the organisation has built in significant cost advantage and process harmonisation at alternate locations to withstand costs and margin pressures. The recent emergence of destinations like Mexico, Czech Republic, Poland and China is one such outcome to ensure consistent process and business delivery without impacting client business.

While the value proposition of the BPO industry is inherently cost-focused and hence well-suited to support clients in managing downturns in their market economies, outsourcing engagements typically have a two-year break-even period. We are talking to several prospects today that want to outsource to Infosys but are looking for a more aggressive business case in year 1, and commercial structures that make their costs lower and variable.

Those offshore BPO companies whose managements continue to think only in terms of attrition rates and SLA adherence may not stay relevant to clients, and are potential targets for the shakeout that you spoke of!

Offshoring had been the buzz word for a while. The current buzz seems to be ‘global delivery model’. Does this mean India will not see the kind of offshore business and hiring the country has seen over the last 3-4 years. Have we peaked in terms of hiring?

No not really! Most of our clients are already present in India, selling products and services as well as designing/delivering for the global market – one of our clients has chosen India as its third globalisation centre, the only one in an emerging geo. Another client has a global logistics coordination centre here. They see strong management and operating synergies in having their BPO vendors perform work that is core and strategic, in the same location. Significant amount of such BPO work shall therefore continue to reside in India.

For commodity work, where there is now an established global delivery model, we are already seeing infrastructure quality, disruption-free environment, and cost arbitrage making other locations very attractive. Certain locations also offer better skills today, such as the Philippines - for voice-based services. We currently have approx 12 per cent share of revenue from locations outside India and this is only expected to grow.

While some of the location strategies are client-driven, most BPO vendors continue to leverage alternate locations to strengthen their geographical footprint as well as rein in local talent and specialised skills to drive competitive advantage. For an India play, we have added Jaipur, Gurgaon and Chennai to our existing India presence in the last one year.

Indian industry has for long been comfortable with seat-based model. Now there is talk of a platform-based BPO model. Will this model work for the Indian BPO providers?

We see this as a clear need and an imminent change in the way BPO firms operate going forward. Mature BPO players are providing platform-based solutions to many of their customers. This involves considerable leverage of the vendor’s IT capabilities as well. We believe this will be a key driver in shaping the customers’ outsourcing-led business strategies focusing on business transformation. We continue to leverage our platform offerings in the order management, procurement and HRO space.

One has not really seen voice-based players moving into non-metro locations in a big way. Do you expect BPO companies to expand into tier 2/3 towns? What will be the key drivers for a move into these locations?

Voice-based processes require a certain amount of communication skills that have been predominantly present in the tier 1 cities. However, with rising infrastructure and salary costs, more and more companies are looking at tier 2 and 3 cities for their growing voice and operations requirements.

While lack of quality manpower has been a concern in the past, there has been significant improvement in this situation with the industry taking some corrective steps. The need is to nurture a sustainable and employable base in the tier 2/3 cities as well. Through ‘Infosys BPO Project Genesis’ initiative, we are looking to shoulder the responsibility of enhancing the communication and employability skills of tier 2/3 prospective employees. We have also partnered with the academia in small cities to impart training to graduate students.

These cities are less affected by problems of attrition and absenteeism as compared to their tier 1 counterparts. We would see the ratio of voice processes increasing in tier 2 and 3 markets in the next few years.

What is your take on Europe as a BPO market? Also, what are the other markets (in terms of customer acquisitions) you are bullish on, outside of the US?

We see Europe more as an opportunity, in a market getting ready to be on board the outsourcing game rather than a risk mitigation strategy. Manufacturing in Europe has been actively globalising in the last two years, with many companies setting up shop or subcontracting in China and India. Expectations from the European manufacturers are different and focused more on strong processes, quality and service innovation compared to the US. It is a longer-haul and we need to build credibility through demonstration and reference relationships. The Royal Philips relationship we entered into last year is going to be a key driver of growth in this region for us.

The other large market that we are excited about is Japan, both from the kind of value we can deliver to them and the competencies around quality and innovation that such a partnership will bring into our DNA.

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