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'Indian BPO growth to slow down'

The growth of BPO is likely to further slow down amid concerns over data security breach, high attrition rates and staffing costs.

india Updated: Jul 14, 2006 13:24 IST

The growth of offshore Business Process Outsourcing industry in the country is likely to further slow down over the next one year amid concerns over data security breach, high attrition rates and staffing costs, rising competition and continuing margin pressures, global research firm Forrester said.

The US-based technology and market research major said in a report on the offshore BPO industry that the growth rate would come down to 28-30 per cent over the next 12 months from nearly 35 per cent currently.

In the past 12 months, the Indian BPO growth rate dropped from 48 per cent in FY04-05 to 35 per cent in FY05-06.

Forrester said that the recent instance of data leakage at HSBC's India centre reaffirms that Offshore BPO growth will slow down amid security concerns.

The incident has come as a major blow to the prevailing common belief that captive BPO and IT centres are a safer approach to offshore outsourcing and that such frauds are more likely to happen when working with a third-party outsourcer, it added.

An employee at HSBC's Bangalore cente allegedly leaked the personal and debit card information of more than 20 British customers to a racket of fraudsters in London, while 233,000 pounds worth of money were stolen from the customers' bank accounts through ATMs, debit cards, and telephone banking.

The employee has been arrested by police and investigations are on to identify his accomplices in London.

Forrester said this episode is much more sophisticated and involves a nexus of offhore data piracy with onshore physical theft, as compared with the past events.

But unlike an earlier event involving offshore outsourcer MphasiS, this incident happened at a center owned and staffed directly by HSBC -- typically referred to as a "captive facility", Forrester said.

Forrester Research India Country Head and Senior Analyst, Sudin Apte, who authored the report said: "Compared with past events, this instance is much more sophisticated and involves a nexus of offshore data piracy with onshore physical theft."

"The incident once again brings up the subject of information security in offshore operations. While instance of data leakage leading to account theft is a universal phenomenon, massive media glare, coupled with limited government action to prevent reoccurrence, will further slow down offshore business process outsourcing (BPO) growth," Apte said.

He added that third party vendors' employee due-diligence and security practices are typically better than the captives because vendors try their best to win the confidence of clients and prospects.

"In fact, the security is often much greater at IT and BPO facilities in India than it is at vendor or user facilities in the US and UK," Apte said.

In addition to security concerns, challenges such as high attrition rates and staffing costs, rising competition, and margin pressure are the key factors contributing to the slowdown in the industry, Forrester said.

It added that clients would become even more rigorous in their employee screening and security validation, thereby slowing the sales pace.

Indian law would also need to be modified soon as the current IT act is "plagued by loopholes" and is "clearly falling short in its ability to deal with growing cybercrime," it added.

Forrester said that its interviews with Indian legal experts uncovered that the criminals arrested in the MphasiS theft have not been brought to justice so far and it would take another 3-4 years for evidence collection, hearings, and final judgment.