Wednesday
16 July 2003
Business Standard.
The BPO no one talks about!
Nasscom doesn’t track them and they ‘re
small beer compared with the big boys. But the number
of BPO companies that cater to the burgeoning domestic
market is climbing, reports SURAJEET DAS GUPTA
“The political Risks are low here, contracts
are virtually permanent –with international
clients they are for a short -duration and competition
is limited”
TUSHAR
CHOPRA
Managing Director,
ATS Services
Paging company Microwave communications was finding
the going tough with its subscribers switching to
cheap mobile phone services. Indeed, the Delhi based
company’s number of subscribers dramatically
halved to only one lakh more than two years ago.
Microwave Communications, It seemed, had no option
but to close and call it a day.
That’s when it hit upon a novel business opportunity.
Two years ago, Microwave offered its 750-odd seater
call center backbone in over 10 cities to companies
that wanted to out source some of their business
processes.
Microwave is in fine fettle now. Business process
Out sourcing (BPO) accounts for 50 percent of its
over Rs 40 crore turnover, with paging operations
accounting for the rest. It now has over 100 clients,
including Hindustan Lever, Hutchison Max, BSES and
ICICI Bank. Says Deepak Malhotra, Chairman of Microwave
Communications Which is part of the HFCL group:
“We expect to grow by at least 50 percent
this year and we are adding an other 300 seats to
cope with the growing Demand. With out the BPO business
we would have been in serious trouble”.
Say hello to BPO companies that cater to the Indian
market. They operate far from the arc lights. They
don’t hit the headlines like BPO companies
Wipro Spectramind or eDaksh, both of which cater
to the overseas market. The national association
of software and service companies (Nasscom) doesn’t
track them at all. What is more, with turnovers
that range between Rs 30 Crore and Rs 50 Crore they’re
small beer compared with big BPO boys with their
revenue of over Rs 300 crore.
But their numbers are burgeoning, as is the size
of the market in which they operate. According to
industry estimates the domestic market could well
be worth over 10 percent of the international BPO
market (around US$1.7 billion). That’s a cool
Rs 799 crore or so- and it’s growing smartly
at an annual clip of 50 percent.
The potential size of the business could be huge.
BPO analysts say that Indian companies now outsource
only 5-10 percent of their businesses processes
but this will go up to 40 percent with in next three
years.
According to the Bangalore based Crossdomain, the
BPO Company that deals with human resources (HR)
issues, there are 43 million employees on the provident
funds roll, but companies currently outsource only
1-2 percent of their HR functions. In the marketing,
companies spend over 3,000 crores annually on below
–the –line activities but only 25 percent
of this is outsourced to third party companies.
The Delhi-based Solutions Integrate expects this
to rise rapidly to 50 percent in the next two to
three years. And in financial services, India has
only 5-6 million credit card holders but this number
is expected to climb to 100 million in five years-something
that once again offers large business opportunities
to companies in the credit processing business.
Says Ravi Datar, analyst at Gartner, the IT data
tracking company:” The size of the market
cannot be gauged as a large part of business processes
is done in house in India. But the rub off on Indian
companies of the benefits of BPO is already showing.
We expect rapid growth.”
Datar is right-the action is heating up. Crossdomain,
set up by a group chartered accountants three years
ago, is now negotiating with a plantation company
which wants to outsource HR processes for a staggering
130,000 employees – something that which will
virtually double Cross domain’s size.
It has roped in ICICI ventures as an investor. It
offers Indian companies HR expertise, ranging from
pay roll processing and tax planning processing
to answering HR questions. The company processes
data on over 150,000 employees of companies and
bank such as Hindustan Lever, Sun Microsystems and
Standard Chartered Bank.
Solutions Integrated (which hopes to hit a turnover
of Rs 52 crore this year) is expanding its client
portfolio. Solutions offers marketing expertise
to clients, including making direct calls to customers,
retail merchandising and even offering companies
manpower. Says Srikant Sastri, Solutions managing
director and co-founder and a former advertising
executive: “ We expect to grow by 50% every
year in the next three years. Earlier IT, telecom
and the media constituted the bulk of the business.
Today others like fast moving consumer durables
companies are willing to outsource and they constitute
30 percent of our business.”
BPO companies also underline the advantages of servicing
the domestic market. Says ATS Services managing
director Tushar Chopra: “Unlike in an international
business, the political risks are low here, contracts
are virtually permanent – with international
clients, they are for a short duration and competition
is limited. The business mostly involves convincing
companies to outsource what they are doing in house.”
On their part, Indian companies are realizing that
there are compelling reasons to outsource. Reason
one: BPO companies point out that net savings to
companies that outsource could range from any where
between 15 percent and 25 percent. But, says Crossdomain
executive director L S Ram: “In companies
which are 20-30 years old the cost savings can be
as high as 40 percent. Plus you have converted a
fixed cost into a variable cost which gives you
the flexibility to up-scale or downscale.”
Reason two, as mobile phone service provider Hut-chison
India’s Delhi boss Rajiv Sawhney, Points out:
“The Strategy is to concentrate on your core
business and outsource the routine tasks which they
are better equipped to do”.
Against this backdrop, it’s no surprise that
big financial investors have been quick to spot
potential winners and have started investing in
them. Quite some time ago Citigroup corporate Equity
acquired a strategic stake in the Delhi based ATS
services, which offers financial service out sourcing
expertise (data entry, document verification, risk
verification). Chopra a former Citibank executive
aims at doubling ATS’s RS 10 crore turnover
this year. ATS has already started making cash profits
in the second year of operations and its client’s
are virtually doubling the number of seats they
take every three months.
Mean while. BPO companies are leveraging their unique.
Strengths. Paging companies for instance, are using
their single common toll free number facility across
the country that customers can dial to attract clients
in the inbound calls business. Says Rajeev K. sehgal,
CEO at Modi Telecom, which has converted a part
of its paging operations into a BPO: “ with
competition increasing there is a need to improve
customer service levels through direct contact.
We are offering clients one number across the country
which customers can easily call redress their complaints
that is a big market” Modi telecom has over
20 clients, among them telecom, insurance and FMCG
companies, and 80 percent of its revenue comes from
the inbound call business.
Finedge, the Delhi –based BPO call center
company, is going a step further –is educating
clients, especially FMCG companies, on the advantage
s of a 24–hour customer service number. Says
Rakesh Seth, chief executive of Findege, who got
into the business after seeing the popularity of
telemarketing and toll free customer service numbers
while he worked for nestle in London: “the
margins in inbound calls are much better than in
outbound calls. We are trying to convince clients
that they spend five times more on acquiring a new
customer than on retaining an old one, and in 49
out of 50 cases dissatisfied customers change brands.”
Foe all this, however, BPO companies that focus
on the home market face several challenges. Their
net margin of around 20 percent is virtually half
of those of BPO out fit that concentrated on the
foreign market. Then, the overseas BPO market is
expected to grow by over 65 percent a year, much
faster than the domestic market.
They could also face some competition-many BPO companies,
including international majors, have begun eyeing
the domestic market, especially with surplus capacities
being built up. At the moment, BPO companies that
focus on overseas business stand to lose their export-oriented
unit status and tax benefits if they use their infrastructures
in the morning for domestic clients but the government
evidently is thinking of making the rule a bit more
flexible.
But the BPO companies that focus on the home market
are unfazed. They argue that working in the domestic
arena offers them am edge. Says Chopra: “Because
our margins are lower, we have been forced to be
more efficient. So we are better poised to complete
by offering lower prices than BPOs that cater to
the international market.” citing an example,
chopra says that his cost of data entry processing
work is 30-50 percent lower than that of the big
boys that have a large infrastructure.
Others echo Chopra’s point. Says Sethi: “
their overhead costs and the low margins will always
make them only marginal players in this business.
We have a definite cost advantage.”
That assessment finds some support from at least
one BPO that focuses on the external market. Says
Manish Modi, CEO of datamatics which runs a BPO
business: :I don’t see any reason why companies
like us will focus our attention on domestic business
when the international market is so huge and we
have just scratched the surface.”
In fact, some of the BPOs whose business is primarily
domestic are trying to sally forth into the external
market. Crossdomain, for instance, expects 65 percent
of its revenues to come from international business
in the next three years, Sys ram: “We wanted
to build the business in India first as we did not
have the expertise and domain knowledge earlier.
Now we are poised to move out also”.
Solutions wants to get into the international arena
in order to hedge its risks. It has already set
up an office in Singapore and has started work on
international projects. Confirms Sastri:”
we wanted to hedge out bets. We did not have money
initially to aggressively bid for international
business. We are moving slowly and hope to get 15
percent of our revenues next Year from international
business”.
That may be an idea whose time has come. But what’s
un questionable is that the domestic market will
grow every year as more and more Indian companies
realize the economic advantages of outsourcing –and
BPO companies that have a presence in this market
could well be tomorrow’s star.
