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Indian IT BPO Industry Market Watch
If you have read about India in recent months, you will know that enormous numbers of young people have found an area positive and upbeat to work in – the Business Process Outsourcing (BPO) industry. In places like Gurgaon and Noida (near the national capital Delhi), Mumbai (Vashi and New Mumbai), Pune, Kolkatta, Chennai, and of course Bangalore; the ‘cool’ thing for young people is to join the BPO industry. It pays well, has excellent working conditions (compared to other industries in India), and most importantly 85% of the new hires are “twenty something’s.” According to the National Association of Software and Service Companies (Nasscom) Indian ITES-BPO exports have grown to US$6.3billion at the end of the current fiscal year (FY 2005-06).
However, the challenges are also growing; availability of skilled human resources, information security environment, infrastructure, and overall perceived social conditions. The challenges that the Indian government faces are to provide the business and social environment for business to further flourish. Further many infrastructure areas need investment including airport upgrades at all leading offshore destinations.
So, why does everyone look to India and what are key growth drivers? Globalization, overseas competition and the business economics imperative, Global sourcing going mainstream, significant senior business leadership vision and oversight and India’s demonstrated superiority, sustained cost advantage and fundamentally powered value proposition
It is important to understand that five of the Indian IT industry players have surpassed US$1 billion in their turnover. Most of the leading Indian IT/ITES-BPO companies are in cutthroat competition for customer acquisition and are creating a far bigger global business pie for each other, as well as for other competing countries.
Overseas Listing of Indian 3rd Party Service Providers - The News Makers
The highly successful listing of WNS—India’s leading 3rd party BPO services provider—at the NYSE, has “scripted” a new chapter in the history of the Indian BPO industry. Not only has it reaffirmed the country’s edge within this market, it has also pointed to a growing sense of confidence among investors in the India story. Subsequently, EXL Services listed itself on NASDAQ. Market forces indicate Genpact (former GE subsidiary) and 24x7 Customer will do the same in first quarter of 2007. This proves that the market is large enough and that there is enough business for both third party and captive players to sustain growth.
A study by Evalueserve also estimated that seven to ten large BPOs would use the Initial Public Offering (IPO) route between 2005 and 2010, and the market value of these companies could aggregate to more than $3 billion. In all likelihood, this will stimulate Mergers and Acquisitions (M&A) activity as large captive units may spin-off as third party service providers by way of disinvestment by either the parent company or eventual acquisition by a large Indian third party player.
Indian ITES-BPO market hot ups with M&A activity
Essar, Datamatics, Godrej and Intelenet, jointly owned by TCS and HDFC, have acquired BPO businesses overseas in the last few months. Essar has picked up a 40 per cent stake in the Aegis Communications group. Last year, Essar acquired e-telequest, which may be consolidated into a single BPO entity with Aegis in future. High net worth individuals in Dubai are investing in venture capital funds, which are buying US companies and selling/migrating a part of the operations to the Middle East. The Indian ITES-BPO industry seems poised for a hectic round of consolidation. The total value of M&A and initial public offerings in the industry could touch $3-5 billion between 2005 and 2010, with large transactions grabbing a chunk of the pie, according to an Evalueserve study.
"The Indian outsourcing industry is expected to witness an increase in mergers and acquisitions and IPO activities, which will lead to a significant consolidation in the mushrooming BPO industry, especially among the small and medium sized players. Very large BPOs are likely to capitalize on favorable multiples currently being offered in the industry, whereas small to medium players will either continue to exist as focused niche players or be acquired by larger BPOs or western companies," the study said.
Putting the Indian ITES-BPO House in Order
NASSCOM Assessment of Competence (NAC) is a national Assessment and Certification standard created by NASSCOM for the young job seekers and was launched on 18 November 2006. The initiative is aimed at creating a robust and continuous pipeline of talent. This will be done by continuously assessing candidates on key skills through a national standard assessment, thus making it easier for firms to screen candidates and provide training need analysis to candidates. This will then be tied in to training and development efforts to help more candidates become competent to work in the industry.
The growth in the ITES-BPO industry has been staggering, and the need to have a common industry standard and benchmark for selecting or eliminating candidates for the interview process is a ‘blessing in disguise’ for industry players. This provides industry savings in time and resources; subsequently, this will also help industry players to save up to 50% of their hiring costs. Most importantly, it will create a need-based training feedback system for young job candidates. That means that candidates holding a NAC certificate, who were not selected for a particular job will receive a training needs feedback from the respective employer. As a result, this will help the Indian training industry to boom and will increase the convertibility ratio of selection to walk-in from1:10 to 2:10. Interestingly, the state governments (province) have started using NAC certified candidates as a selling proposition to potential investors; earlier the value proposition selling was mostly done on infrastructure and tax issues, which has improved tremendously over the last decade.
It is estimated that India has a 50% share of the total offshore business worldwide, NASSCOM’s vision is to have NAC certificate as a must have for all the offshore destinations like, the Philippines, South Africa, Brazil, China, Mexico and any other players coming into the space. In this regard, NASSCOM has already signed an agreement with 3-4 countries. The research shows that the NAC standard and certification is the first of its kind across the world for any industry.
In January 2006, NASSCOM launched an information security initiative called National Skills Registry for IT Professional (NSR-ITP). The National Skills Registry is a step to ensure that there is a verified database of the skill sets and talents of the human resources within the Industry, which would enable them to shift within the industry with a minimum of paperwork and reference / verification checks. It is very similar to the social security number system in US and works on a shared-service model. NSR-ITP is a database of Indian IT professionals who have been screened and checked against a strict set of criteria. The database contains demographic, educational/professional, past and current employment and unique identification (photographs and fingerprints). The ownership of the data lies with the employee itself. According to some senior industry players, this will further increase the Indian competitive edge in the offshore business.
India has established its leadership position globally in the offshoring market and now the availability of skilled labor is one of the key criteria to the continuing fast growth of the industry. Initiatives such as the ones described here will go a long way towards to continued success.
You can reach the author at mdshahab@nasscom.org. Md. Shahabuddin is Assistant Vice President at NASSCOM and is responsible for managing the new initiates in the HR and Information Security space. The views expressed here are his personal views. Nasscom is the premier organization that represents and sets the tone for public policy for the Indian software industry. |
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