BPO industry challenged: Outsourcing giant India losing to China, small countries
India’s top slot as the favourite business process outsourcing (BPO) destination in the world is being challenged by tiny nations like Philippines, Indonesia, Vietnam, Sri Lanka, and others, besides big brother China and other east European countries.
The latest to join the league is Bangladesh.
Riding the low-cost advantage, several of these countries are making a huge effort to garner an increased share in the growing global BPO, now known as BPM – business process management, market. India’s share in this $186 billion global industry is as big as 36% but the threat of other countries eating into India’s share is looming large.
To the industry’s surprise, Bangladesh, represented by the state-run Bangladesh Hi-Tech Park Authority was one of the sponsors of the annual Nasscom India Leadership Forum (NILF) 2017, held in Bengaluru last month.
“It’s about aspirations of small countries to have their portion of the growing pie in the BPM industry. Bangladesh too is one of them. Bangladesh participated in the NILF, sponsored the event to see how India is doing on this front. The Bangladesh minister spoke to us and sought assistance for developing BPM sector in their country,” said Raman Roy, the vice chairman, Nasscom.
However, it will be a challenge for India to maintain its leadership position as major countries like US, UK continue to look for low-cost options towards south-east Asian countries to remain competitive in the global market. India gets 65% of the total outsourcing business from US.
“The top 7 globally accepted locations in specific order are India, China, Philippines, Malaysia, Brazil and Indonesia. China is soon becoming the favorite for basic low value services, Philippines is preferred destination for financial services and voice-based support. It is also soon gaining ground in high value services like engineering and legal BPO,” said Deepak Kapoor, founding member, Business Processing Industry Association of India (BPIAI).
He said Malaysia is a preferred destination for gaming and animation services, Brazil is picking up in financial services and voice based customer support, and Indonesia in engineering services, gaming and animation.
“Base-level back-office payroll and data entry will go to rock-bottom-wage emerging countries like Vietnam and Uruguay over time, and countries like Philippines, Brazil, Malaysia will move up to complex software and product development services,” Kapoor said.
While quoting the findings of his research firm Golden Sparrow Inc, Kapoor said about 2-3% recent business shift is seen in financial services and voice related work from India to destinations like Philippines. Another 2% business is being lost to European destinations, he said.
According to BPM experts, although India will continue to dominate the BPM space, there are reasons why the US and other global firms look for other destinations in addition to India.
“For voice work, the Philippines has a better voice/accent environment even though it is at a cost disadvantage to India. For some kinds of work, close proximity and time zones advantage near shore locations is preferred over India,” said Peter Bendor Samuel, CEO of Everest Group, a Dallas-headquartered management consulting and research services firm.
Citing concentration risk as another reason, Samuel said some firms feel that they are overly concentrated in India creating increased risk in the event of natural disasters or large currency swings for these firms a more geographically dispersed location strategy makes sense.
“Although these alternate locations have taken some share from India such as Mexico, Costa Rica and for Europe, Poland, we believe that these share gains will level off as these alternative locations are priced higher than the low cost high skilled Indian labour pool,” Samuel said.
According to Nasscom estimates, a total of 1.1 million people work in Indian BPM industry. More than 500 companies in India are offering outsourcing services in 35 languages to over 66 countries. About 200 MNCs operate out of India in this industry.
According to Phill Fresht, the CEO of US-based HfS Research agency, Philippines has very strong skills in voice and multi-language while Sri Lanka is low cost and has strong finance talent.
“India’s dominant position is being challenged by small countries because of cost and niche expertise. Philippines has a very strong culture for customer service delivery; Eastern Europe is for specific IT skills and China for specific programming skills,” Fresht said.