BUSINESS PROCESS OUTSOURCING

BPO [Business Process Outsourcing] has been the latest mantra in India today. IT services companies are making a quick entry into the BPO space on the strength of their existing set of clients.

Business process outsourcing (BPO) is a form of outsourcing that involves the contracting of the operations and responsibilities of a specific business functions (or processes) to a third-party service provider. Originally, this was associated with manufacturing firms, such as Coca Cola that outsourced large segments of its supply chain. In the contemporary context, it is primarily used to refer to the outsourcing of services.

Companies are moving their non-core business processes to outsource providers. BPO saves precious management time and resources and allows focus while building upon core competencies. Apart from call centers, functions outsourced span purchasing and disbursement, order entry, billing and collection, human resources administration, cash and investment management, tax compliance, internal audit, pay roll...the list gets longer everyday. If done well, BPO results in increasing shareholder value.

Benefits derived from BPO can be summarized as follows:

• Productivity Improvements

• Access to expertise

• Operational cost control

• Cost savings

• Improved accountability

• Improved HR

• Opportunity to focus on core business

Outsourcing is not new — it has been a popular management tool for a decade. One can safely say outsourcing has evolved: —

• 1960’s — time-sharing

• 1970’s — parts of IT operations

• 1980’s — entire IT operations

• 1990’s — alliances/tie-ups

• 2000’s — IT-enabled services (ITES)

India’s advantages as the BPO destination:-

India has one of the largest pools of low-cost English speaking scientific and technical talent. This makes India one of the obvious choices to outsource to. Dell, Sun Microsystems, LG, Ford, GE, Oracle all have announced plans to scale up their operations in India. Thus India’s advantages to outsource can be summarized as follows:-

Availability of qualified personnel across various industrial fields.

English speaking and IT savvy workforce providing a suitable platform for an outsourced call center.

Indians are taking BPO jobs as a good career option.

Vital government support for Call center & BPO services providing industry.

Cost reduction up to 50%.

Telecom infrastructure is improving to meet outsourced call center requirements.

Infrastructure costs are low in comparison to other countries.

Adherence to leading quality practices by various organizations and important aspect is certifications are given importance.

Strong domestic IT services industries are coming up to support BPO industry.

Overview of the industry for the Past Decade.

According to a Report, India is at the forefront of the rapidly evolving Business Process Offshoring (BPO) market, having established itself as a “destination of choice.” The sector, that has grown manifold in size and matured in terms of service delivery capability and footprint over the past decade, is now at an inflexion point. Today, it faces a unique opportunity to enhance its role as a full-service, value-adding partner. There is significant headroom in the addressable BPO opportunity for buyers and providers, and there are sizeable untapped areas across a wide spectrum of segments. Also, the Indian BPO sector is favourably positioned to benefit from its established delivery capabilities, which influence buyers’ decision to expand their global sourcing exposure..

Roadmap 2012

The sector is estimated to aggregate revenues of USD 88.1 billion in FY2011, with the IT software and services sector (excluding hardware) accounting for USD 76.1 billion of revenues. During this period, direct employment is expected to reach nearly 2.5 million, an addition of 240,000 employees, while indirect job creation is estimated at 8.3 million. As a proportion of national GDP, the sector revenues have grown from 1.2 per cent in FY1998 to an estimated 6.4 per cent in FY 2011. Its share of total Indian exports (merchandise plus services) increased from less than 4 per cent in FY1998 to 26 per cent in FY2011.

A Study shows that going forward, the Indian BPO sector, at its current momentum, can reach around US$ 30 billion in export revenues by 2012. However, the sector can set itself a stretch target of US$ 50 billion (that is, approximately five times its present size) in export revenues by 2012. A five-fold growth in the Indian BPO market will add nearly 2.5 percent directly to India’s GDP from exports earnings and provide direct employment to about 2 million people. This will also spur growth in smaller Tier 2 and 3 cities to enable a six-fold growth in the number of delivery centers that will be required to support the enhanced target for the sector.

India’s IT-BPO market (including exports) could touch USD 285 billion in 2020 growing at a CAGR of 15 percent. The IT-BPO industry in India has achieved impressive growth rates over the past decade which currently stands at *USD 71.6 billion in 2009. A report release by KPMG and ASOCIO titled ‘Asia-Oceania Vision 2020: Enabling IT leadership through collaboration’ reveled that India the current market leader in global sourcing supply, serving approximately 51 percent of overall global sourcing demand is expected to retain its leadership position by 2020.

1. DEFINITION OF ITES:-

ITES stands for IT-enabled services. IT-enabled outsourcing can be defined as:

• Those outsourcing services that use information technology in the processing and delivery of the service.

• Services are typically delivered through a telecommunications or data network, or other electronic media

The term ITES can be defined as outsourcing of such processes that can be enabled with information technology and covers areas as diverse as finance, HR (human resource), administration, healthcare, telecommunication, manufacturing etc. IT Enabled services (ITES), also called web enabled services or remote services or Tele-working.

Following are the some of the IT Enabled Services:-

Medical Transcription Document Processing Data Entry and Processing

Data Warehousing

IT Help Desk Services

Application Development

Enterprise Resource Planning

Telecommunication Services

Sector Structure:-

According to the National Association of Software and Service Companies (NASSCOM), the apex body for software services in India, the revenue of the information technology sector has grown from 1.2 per cent of the gross domestic product (GDP) in 1997-98 to an estimated 6.4 per cent in FY 11-2. THE KEY GROWTH DRIVERS OF THE INDIAN ITES-BPO EXPORTS:-

Globalization, overseas competition and the business economics imperative

o Rapid growth of globalization has added to competitive pressures across geographic markets that were previously relatively isolated from overseas competition.

o The resulting impact on growth and profitability continues to push organizations towards more cost efficient business models.

Global sourcing going main stream, significant senior business leadership vision and oversight and Quality of Services

o Having convincingly established proof-of-concept, global sourcing is now a key element of corporate boardroom agendas.

o As a part of mainstream business strategies, offshore/outsourcing initiatives are being accorded significant senior leadership oversight.

o Increasing emphasis on leveraging the model for greater strategic business impact; not restricted to functional support (IT, HR, etc.)

o 30% of companies worldwide who have reached Level 5 of Capability Maturity Model Integration (CMMI) are Indian IT/ITES firms.

o Nearly 75% of Fortune 500 and 50% of Global 2000 corporations source their technology related services from India with an increasing number of MNCs outlining their investment plans for setting up R&D operations in India.

o The other heartening feature has been the growing acceptance and adoption of the newly emerging People-Capability Maturity Model (People-CMM) by the Indian software industry. For a country like India, with its large assets in the form of skilled human resources, the relevance of People CMM needs no emphasis. A large number of Indian IT software and services companies have been quick to realize this and have either implemented or initiated these programs.

India’s demonstrated superiority, sustained cost advantage and fundamentally powered value proposition

o Outsourcing to India has provided companies with significant benefits over the arbitrage in labour costs — through business process enhancements and improvements

o Indian vendors are expanding their service offerings, enabling customers to deepen their offshore engagements; the shift from low-end business processes to higher–value, knowledge–based processes are having a positive impact on the overall industry growth.

o Indian vendors have successfully built-up the scale of their operations to match the pace of increasing demand for these services — ensuring that client organizations do not have to settle for alternate options.

o In spite of the rising elements of cost, Indian offshore operations provide cost savings of 40-50 per cent and in spite of wage inflation averaging 10-15 per cent annually, companies are able to leverage declines in telecom and other overhead costs, productivity gains and economies of scale to sustain the cost arbitrage.

o Recent research has shown that even at current levels of suitability India has the largest pool of suitable offshore talent — accounting for 28 per cent of the total suitable pool available across all offshore destinations and outpacing the share of the next closest destination by a factor of 2.5

o The underlying factor highlighting India’s long-term attractiveness is its highly favorable demographic profile. With nearly 60 per cent of its population between the age of 15-59, and more than half below the age of 25, India will continue to have a significantly higher number of people in the productive (working) age group than in the dependent age group for at least next few decades. In contrast, countries including the US, Europe, Japan and China

have a more aged population with dependency ratios likely to increase over the same period.

o The number of IT-ITES professionals employed in India has grown from 830,000 in FY 2003-04 to well over one million in FY 2004-05.At present over 2 million Professionals are employed This rapid growth in industry employment has been facilitated by the combination of two fundamental factors – a favorable demographic profile and a large, expansive and established network of academic infrastructure.

Global IT spends are projected to grow at a steady rate of 10-11% per annum. The increase in global BPO spend will further give an impetus to the Indian ITESBPO Industry. Also, unpenetrated potential of G2000 corporations (late adopters) Will lead to demand deepening vertical and geographic market penetration of Offshore outsourcing. Indian IT-BPO grew by 12 per cent in FY2009 to reach USD 71.7 billion in aggregate revenue.

Key Highlights of the IT-BPO sector performance in FY 2008-09

IT Industry-Sector-wise break-up

3. THE BEST WAY OF RECEIVING DATA FOR PROCESSING IN ACCOUNTING/BOOK KEEPING TYPE OF BPO WORK:-

Majority of clients use QuickBooks. Few clients prefer to host the database server within their premises. In such cases both the client and the BPO provider need to have good amount of bandwidth [Client: 512K, vendor: dedicated 64k].

4. WHEN TO OUTSOURCE?

Outsourcing can make your business more productive and profitable - if you know when to take advantage of it. Consider these points when making your decision.

Outsourcing can be a strategic tool for making your business more productive and profitable - if you know when to take advantage of it. Consider the following criteria when deciding whether to outsource:

The activity isn't central to generating profits or competitive success.

The job is a routine one that wastes valuable time and energy.

The task is a need that's only temporary or that recurs in cycles.

It's less expensive to have someone else do it than to do it in-house.

The activity can be done cheaper in-house, but drains resources that could be better used elsewhere.

The skill required is so specialized that it's impractical to have a regular employee do it.

The activity isn't one that people enjoy doing.

A List of common factors affecting decisions on outsourcing :

Company's own technical competency and area of business.

Size of the project.

Cost/benefit analysis (feasibility study).

Duration of the project.

Type of project (new development/maintenance project).

Management of the company, and it's beliefs.

Availability of local trained manpower.

Fear of not getting what you want... (Problems with getting competent and reliable service providers).

Budget

Tips for finding and working with a company that's right for you:

Select a compatible company. Choose a company that understands your needs and can accommodate them. Devise a contract that allows you to adjust the terms of the agreement to suit unforeseen changes. An arrangement that's satisfactory now may not work in the future if the company expands or competition increases.

Establish the standards you expect. Outsourcing will mean the loss of direct control and supervision, so communicating the standards of performance you expect is a must. Outline these standards in the contract in detail, and check up on the company periodically to make sure that it's doing its job correctly.

Arrange for constant communication. Schedule regular meetings with your outsourcing people to stay informed and discuss the day-to-day problems they've encountered. By staying aware of what's going on, you can prevent potential problems and improve how your business operates.

Secure insurance for emergencies. Make sure you have a backup system in place in the event that the outsourcing company can't carry through. An accounting service, for example, should provide your company with a copy of backup records or store them in a separate location.

5. WHAT IS NEARSHORING?

The practice of sending outsourced functions of any sort, whether IT-based or business process positions, to a nearby country rather than choosing markets such as Malaysia that are thousands of miles away. For example, US nearshores the work to Canada and Mexico. The physical proximity of these “nearshore” countries is a big threat to India.

Nearshoring (also known as "nearshore outsourcing" and "nearshoring") means sourcing service activities to a foreign, lower-wage country that is relatively close in distance. Nearshoring is becoming competitive with outsourcing to farther areas since the recent rise of fuel costs. The customer expects to benefit from one or more of the following constructs of proximity: geographic, temporal, cultural, linguistic, economic, political, or historical linkages . The service work that is being sourced may be a business process or software development. As withoffshore, the term "nearshore" was originally used in the context of fishing and other ocean-based activities and later adapted by the business world. Nearshoring is a derivative of the business term off shoring. Off shoring is a business activity that is complex and risky because it involves working with a foreign, distant organization. In contrast, nearshoring is understood to mean that the business has reduced the complexity and risk of offshoring.

A well-known example of nearshoring is American clients nearshoring to Mexico, a development actively promoted by the Mexican government. In Europe, nearshoring relationships are being developed between Western Europe, on the one hand, and Central and Eastern Europe, on the other. Central and Eastern Europe became a major provider of outsourcing services for Western Europe companies with the work centers in Russia, Ukraine, Czech Republic, Poland, Romania, Belarus and the Baltic. These destinations not only offer low-cost, skilled labour forces, but also an attractive regulatory environment with a close proximity and cultural ties to Western Europe. Other examples include Japanese clients nearshoring to China.

The complexity of offshoring stems from different languages and cultures, long distances and different time zones, spending more time and effort on establishing trust and long-term relationships, overriding communication barriers and activities of that kind.

6. tHE WAYS OF OUTSOURCING AND ITS PROS & CONS:-

Third Party Service Providers (TPSPs)

• Usually TPSP already has expertise and experience with other clients in similar business lines.

• Very competitive pricing/flexibility to assess various TPSPs

• No infrastructure/capital investment.

• Payback period very less (usually between 6 months to a year).

• Flexibility to out source to multiple TPSPs.

• Flexibility to scale up and down business relationship.

• Can exit from one relationship and move to another.

• Retains decision-making, therefore relationship with TPSP is fee-based, quality-based no staff backlash.

• As TPSP works towards a profit there is more business commitment from them

• Customized solutions ensure data security integrity and safety.Captive centre

• Build expertise from scratch by redeploying resources. Captive center are more expensive.

• Unit costs is higher.

• High capital investment of a captive centre.

• Payback usually between 3 and 5 years.

• Committed to bringing in economies of scale, hence the need to establish a sufficiently large centre.

• Committed resources reduces such flexibility, else training costs could shoot through the roof.

• No exit possible without incurring high costs.

• May or may not retain decision-making. Possibility of backlash from senior management personnel.

• Captive units are usually cost centre.

• Long-term strategy looks for establishing center to first move work as is, and save costs first.

Source: neoIT

7. REASONS FOR OUTSOURCING:-

Reasons for Outsourcing Voting

1. Cost-savings 65%

2. Flexibility in increasing /decreasing IT capacity 41%

3. Knowledge transfer and industry-specific expertise

34% 

4. Reliability 28%

5. Removal of fixed costs 26%

6. Operational expertise 26%

7. Better support for internal users 22%

8. Lack of available in-house personnel 21%

9. Speed to market 20%

10. Improved IT performance 20% 20%

Ten High-Level Reasons for Outsourcing

1. Alleviate Worker Shortages

2. More Profitable Use of Valuable In-House Resources

3. Stay-Focused on Core Business

4. Improve Cost Management and Capital Funds

5. Improve Performance and Reliability

6. Access to World-Class Capabilities

7. Accelerate Business Transformation

8. Accelerate Development and Time-to-Market Cycles

9. Smoother, Less Costly Technology Migration

10. Share Risks, Risk Management , Tax Breaks

8. HOW WOULD OUTSOURCING MAKE US MORE PROFITABLE AND COST EFFICIENT?

Apart from saving a percentage of direct costs the firms would no longer have to incur indirect costs in the nature of infrastructure, utility and human resource costs. Also certain jobs that could not be taken up due to unviable costing would now make sense. Outsourcing creates business opportunity leading to profit maximization.9. HOW to transfer WORK TO INDIA ?

(a) E-mail – For example you may have a text that you want assembled into a handbook. This can easily be e-mailed. The outsourcing provider does the work and returns it in an electronic format of your choice (e.g. as a PageMaker document or a PDF file)

(b) Postal service – You can send your material by ordinary mail. This will reach India in a week’s time. This mode is useful where handwritten forms/source documents need to be sent for entering data into the computer.

(c) Normal imaging service – You can send your material using the scanning device such as Watermark, or any other imaging system. Physical documentation can be scanned and archived by agencies that are experts in the same. These agencies also upload the data on the Internet in a secure manner. These agencies are data houses and information confidentiality is part of their offerings. The data would be accessed in India in a password-controlled environment. Scanning and archiving is not a complicated task and the same can be done in-house by firms in a cost effective manner. However, what is essential is that the data is uploaded in a manner that ensures simplicity and completeness at the BPO service providers end.

10. WHY DO CORPORATIONS OUTSOURCE?

Corporations outsource various functions for all kinds of reasons. The most common reasons are to reduce and control operating costs, move from a fixed cost to a variable cost model, improve company focus, gain access to world-class capabilities, and free internal resources for other purposes, in that order. BPO also provides start-up companies with a much quicker time to market.

Following are the some of the reasons that makes it essential for which corporation should outsource:

Reduce and control operating costs Improve company focus 

Gain access to world-class capabilities 

Free internal resources for other purposes

Gain access to resources that are not available internally 

Accelerate reengineering benefits 

Handle functions that are difficult to manage or are out of control 

Make capital funds available 

Share risks 

Bring in a cash infusion

Successful BPO requires three acts:

1) Selecting the right activities to outsource,

2) Identifying the right supplier to provide the services, and

3) Ensuring the right governance approach for the relationship.11. WHICH BUSINESS PROCESSES ARE CANDIDATES FOR OUTSOURCING?

The targeted business processes areas are as defined below:

• Human resources — payroll, benefits administration, education, and training.

• Logistics/distribution — procurement, transportation, warehouse management, and material management.

• Sales, marketing, and customer service — telesales and marketing, database marketing, Web sales, and marketing.

• Payment services — credit/debit card processing or check processing.

• Finance/accounting — accounts payable/receivable management, risk management, and general accounting.

• Administration — tax processing, claims processing and document management.

• Manufacturing — design, production and component inventory management

• Information Technology — application development and maintenance, desktop support and helpdesk support.

Legal Process - offshore legal research, intellectual property, contract drafting and management, patent and trademark research.

Research - Financial research, financial analysis and modeling ; Business research - competitive intelligence, preparation of company profiles, data analytics ; Life sciences research

12. WHO are INTERESTED IN BUSINESS PROCESS OUTSOURCING?

CFO who are looking at every option to further cut costs

IT Executives under pressure to reduce costs and improve quality

Human Resources executives seeking lower transaction processing costs

Finance and Accounting executives considering new processing options

Customer Care executives building the next-generation virtual global contact centre

Sourcing executives with cost cutting and offshore mandates

Shared Services executives looking to leverage an offshore advantage

Outsourcing providers seeking new ways to reduce cost and improve services

Venture Capital Firms targeting the IT and IT-enabled services markets

Consultants working with clients to develop and implement BPO strategy

13. WHY IS BPO A KEY AREA OF FOCUS FOR LARGE COMPANIES?

Most of the back-office infrastructures of large firms were built for a previous era — pre-globalization, pre-Internet, and pre-M&A. They must change quickly to meet the need for economies of scale and higher competition. For the large firm, the benefit of BPO is access to best practices, which in turn enables improved efficiency and substantial cost savings.

BPO makes sense in a fast-moving world where management attention needs to be on critical operational processes and where management talent is scarce. Doing fewer things well and delegating what’s non-core externally is strategically crucial. Back-offices, while important, are largely non-core.

Corporations are ready for BPO. They understand traditional outsourcing and are more comfortable embarking on more complex outsourcing engagements.

14. WHY IS BPO A KEY AREA OF FOCUS FOR IT SERVICE PROVIDERS?

With BPO, the supplier owns and operates the resources, including infrastructure, applications, and people, to deliver a business process as a service to customers. For the service provider, BPO provides:

Attractive economics and the competitive landscape are two reasons why services providers are interested in outsourcing. Relative to other areas of outsourcing, BPO is compelling for three reasons:

1) Less competition,

2) Higher profitability, and

3) It provides a beachhead for smaller or new firms to gain a foothold in the market.

Technology enablers eliminate some important obstacles to BPO. The adoption of Internet/intranet technologies and enterprise resource planning (ERP) software is making it easier to deliver many corporate functions remotely and more efficiently.

BPO substantially expands the addressable technology services market.

15. HOW DOES BUSINESS INTELLIGENCE (BI) HELP IN BPO?

Business Intelligence (BI) is a proven approach for achieving sustainable business process improvement.

One can supply significant business value to his clients by deploying BI in BPO. Business intelligence is the proven technique for achieving a significant business impact — from enhancing the top line to discovering new ways to reduce the bottom line; from trend analysis to customer retention; from revenue to expenses; from analysis on recruitment to retention; and constant benefit analysis.

The business intelligence market has been looked upon for years as a method to improve the effectiveness of the business process. There are numerous success stories where scores of companies have fundamentally altered how they operated as a direct result of their business intelligence capabilities. Numerous companies have proved business intelligence is an effective approach to enrich the business, which is why the business intelligence market has matured and is accepted as a critical business application by today’s leading companies.The best companies in most industries, you will find they are applying their business intelligence capabilities to improve their overall operational business performance..

16. WHAT ARE THE KEY BENEFITS OF INTEGRATING BUSINESS INTELLIGENCE IN BPO?

Discovers profits: The profits from savings in operational costs after implementing BI can generally exceed BI investment itself in a relatively short period.

Beyond Reporting: BI lets you watch in near real-time the performance across multiple campaigns across multiple regions through a single dashboard.

You can track where your data is going and be alerted in near real-time as soon as security is breached.

You can prove that you are delivering and possibly exceeding the mutually agreed upon business value by continuously monitoring different SLAs (Service Level Agreements)

Accurately forecast business conditions to take proactive decisions using powerful predictive analysis tools.

A BI solution can even analyze the recorded voice data and automatically generate reports on performance measures.

It reduces executive workload and increases overall organizational output and employee efficiency.

Reduces the risks of the BPO function.

Reduces risks for all parties by enabling continuous monitoring of the outsourced business process.

Automatically delivers the right information to the right people at the right time.

The powerful and intuitive analysis and reporting tools of BI can automatically alert you of the discrepancies even in the ability and efficiency of a particular staff member.

Powerful trend analysis of customer behaviour and stock movement. This lets you deliver right products to the right regions and avoid dead stocks.

Achieve sustainable business process improvement.

Establishes confidence in your clients that process effectiveness and control will not be lost.

Client Company can reduce the costs of related retained business processes.

Give more productivity to the outsourcing companies retained staff.

17. WHO ARE THE VENDORS ACTIVE IN THE BPO MARKET?

BPO is a broad category, and many different publicly traded firms can be classified in some way as BPO firms. A representative, though not exhaustive, list of companies that could benefit from BPO would include:

Affiliated Computer Services, Exult, Hewitt, and ProBusiness, which are some of the newer companies that we think are best poised to take advantage of BPO today (and where it is a materially significant percentage of revenues).

Automatic Data Processing and Paychecks in payroll, as well as Concord EFS, First Data Corporation, Global Payments, and Total System Services in payment processing. These are some of the larger, more established outsourcing firms.

The well-known IT outsourcing firms — Computer Sciences Corporation, Electronic Data System, Fiserv, and IBM – have all established large, billion-dollar-plus BPO organizations and should benefit from BPO’s growth. These lines of business, however, are still relatively small as a percentage of revenues (10%-15%) but should be an increasingly important contributor to growth over the next several years.

The Big 5 consultants — Accenture, IBM, BearingPoint, Cap Gemini, Ernst and Young, and Deloitte – have made particular strides in BPO, leveraging their process improvement-oriented consulting practices.

Other companies that could potentially benefit from BPO include Convergys and West Corp. (both in teleservices or customer relationship management), and Interelate (in CRM).

18. WHAT IS THE DIFFERENCE BETWEEN OUTSOURCING AND OFFSHORING?

Outsourcing" is where a company contracts with a third party to do some of the company's work on its behalf. The outsourcer may do the work within the same country, or may take it to another country (i.e. offshored). Opposite would be "in-sourcing" -i.e. doing the work within the company.

"Offshoring" is where you take a function out of your country of residence to be performed there (generally at a lower cost). This may be kept internal, within the same company group,

or it may be external, contracted to a third party (i.e. outsourced). Opposite would be "on-shoring" - keeping within the same country.

Offshore development and maintenance is a subset of outsourcing. The outsourcing provider may perform services on shore, offshore, or in some combination of the two.

The decision is based on a variety of factors, not the least of which is customer preference. Another phrase being used more widely is “near shore,” which normally means work done in outside the US in neighbors to the immediate north or south, Canada, Mexico or Caribbean. Yet another phrase is “Any Shore” or “Best Shore”. For instance, in November 2002, Electronic Data Systems (EDS) unveiled its Best Shore Initiative, designed to help clients pick the best offshore location for their projects.

Offshore outsourcing is gaining a bigger share of the BPO market. Reasons for this being many large corporations are demanding that offshore services be included in a competitive outsourcing bid. These customers have been attracted by offshore vendors offering substantial price savings ($ 20 - $ 30 per hour) for IT services like software code writing and testing, as well as for business processes supported by IT, like claims processing or customer support.19. WHAT ARE SOMETHINGS TO CONSIDER IN A BPO CONTRACT?

Some critical issues to pay attention to in a BPO contract are:

• Work scope;

• Rates;

• Terms, Tenure & Termination;

• Performance Guarantees;

• Deflationary Pricing over length of contract;

• Training costs;

• Data Security, Privacy, Confidentiality and Continuity of Business;

• Indemnification and Insurance;

• Financial Strength of Vendor.20. WHAT IS ATTRITION RATE IN THE ITES SECTOR?

BPOs in India are expected to employ around two million people by 2015, but the challenge is to find quality human resources given the current attrition rate of around 35-40%. Currently, it is about 35% in non-voice and 45% in voice call center. However, what the numbers don’t show is that more than 60% of those who leave a particular BPO do not leave for a competitor, but leave the industry as a whole. Services offered by the IT/ITes and BPO in the domains of pharmaceuticals and financial services have registered an attrition of 60 per cent; in retail and IT sectors 50 per cent; and in automobiles, FMCG and infrastructure sectors 50 per cent Here lies the danger for this sector and the challenge for HR consultants.

Agents want to become team leaders. Team leaders want to become supervisors. Supervisors want the job of the CEO.

At an attrition rate of 40%, the cost of attrition in the industry is 1.5 times the annual salary.

Some of the reasons could be:-

Many see this space to be an Internet sweatshop where all that the employees are required to do is just mechanically input numbers into excel sheets or, worse still, answer phone calls in the same tone and repeat the same lines at least 100 times a day/night.

People who join a BPO usually do so to make a ‘quick’ buck. They are bound to quit because sooner or later they will find something more attractive in terms of the job profile and/or pay.

The industry has concentrated on hiring young, dynamic and these are looking for more than just a job.

Talent in this space is generally overlooked, which leaves the deserving few disgruntled with top management and hence fosters attrition.

To fix this problem BPO firms are trying to solve this big problem

By hiring mature talent [i.e., people over 35 years in age].

HR must realize that fatter pay cheques can never be a sure-shot way to retain employees. More important aspects like a secure career, benefits, perks and communication cannot be overlooked at any level.

Employee retention must be the focus, which means that talent must be recognized and suitably rewarded.

Hire outstation candidates (from small towns) and provide them with shared accommodation.

Offer management diplomas and MBA courses.

Only 5 out of 150 employees become team leaders in a year, hence cash incentives is one way to keep the employees happy. Daksh shells out about Rs 4,000 bonus per month to almost 85% of its workforce.

Use psychometric tests to get people who can work at night and handle the monotony.

BPO must concentrate on becoming an ‘employer of choice’. A comprehensive process framework and access to proper infrastructure in the work place goes a long way in retaining employees, as a congenial work environment.

21. WHAT IS BPM?

BPM stands for Business Process Management; basically) is a holistic management approach[1] focused on aligning all aspects of an organization with the wants and needs of clients. It promotes business effectiveness and efficiency while striving

for innovation, flexibility, and integration with technology. BPM attempts to improve processes continuously. It can therefore be described as a "process optimization process." It is argued that BPM enables organizations to be more efficient, more effective and more capable of change than a functionally focused, traditional hierarchical management approach. An empirical study by Kohlbacher (2009) indicates that BPM helps organizations to gain higher customer satisfaction, product quality, delivery speed and time-to-market speed.

22. WHAT IS BTO?

BTO stands for Business Transformation Outsourcing. Accenture defines BTO as a strategic partnership between the customer and the outsourcer with the advantage of sophisticated financing mechanisms. It would involve the firm acquiring strategic stakes in the BPO operations that companies have outsourced. BTO involves sharing risks and gains with an outsource business partner, measuring the performance improvement in dramatic gains in the share price, market position and return on capital.

A BTO provides a comprehensive set of services across the entire organization resulting in a pre-decided output, whereas a BPO is just a contract for outsourcing services/functions to be done in a specified way. BTOs are more profitable and higher up in the value chain.

BTO also stands for Business Technology Transformation.23. WHAT IS BPO2?

BPO2 stands for Business Process Optimization and Outsourcing. It is responsible for the implementation of a process or part of a process of another business organization and outsourcing is done for cost savings or increased productivity.24. WHAT IS EPO?

EPO stands for Engineering Process Outsourcing. EPO industry is playing crucial role in efficiently supporting dynamic architecture, engineering and construction industries worldwide. India’s engineering process outsourcing (EPO) business would grow 10-fold by 2014 to touch US$ 30 billion and make the country a major hub in this area. The global EPO market, on the other hand, will grow to around US$ 110-US$ 140 billion by 2015, taking India’s share to 20-27 per cent, said the study conducted by the state-run Engineering Export Promotion Council.25. WHAT IS ESO?

ESO stands for Engineering Services Outsourcing.

Engineering Services Outsourcing (ESO) includes product design, research and development and other technical services across sectors like automotive, aerospace, hi-tech/telecom, utilities and construction/industrial machinery.

Spending on engineering services was $ 750 billion in 2004 and is projected to grow to 1.1 trillion globally by 2020, according to a recent Nasscom and Booz Allen Hamilton study — Globalization of Engineering Services — the next frontier for India.

ESO also stands for Educational Services Outsourcing. Education is a growing sector and the demand for Indian educators is on the rise. ESO market is estimated to be US$ eight billion dollars and Indian teachers are currently offering services to countries like US, UK, Canada, and the Middle East. Though the main demand is from USA, newer markets of Netherlands and Europe too are fast opening up for Indian teachers.

What is FAO?

Finance and Accounting Outsourcing (FAO) deals with document management, accounts payable, accounts receivable and accounting services . By transforming manual paper-dependent payables and billing processes through our imaging, bill delivery and workflow systems, customers minimize the labor intensive work associated with back-office processing. Outsourcing benefits include improved cash flow through improved DSO and controlled DPO. This combined with reduced processing costs, increased business intelligence and improved customer/vendor relationships provides the ultimate value proposition.26. WHAT IS KPO?

KPO stands for Knowledge Process Outsourcing. KPO was the next BIG thing to BPO. Starting off as an offshoot of the BPO industry, it has rapidly developed into an industry of its own. Knowledge Process Outsourcing involves outsourcing knowledge-based business processes. While BPOs deals mainly with customer care and technical support, KPO deals with high-end processes like valuation, research, analysis etc in various fields.

Knowledge process can be defined as high end value added processes chain where the achievement of objectives is highly dependent on the skills, domain knowledge and experience of the people carrying out the activity. When this kind of activity gets outsourced a new business activity emerges, which is generally known as Knowledge Process Outsourcing.

Knowledge Processing Outsourcing (popularly known as a KPO), calls for the application of specialized domain pertinent knowledge of a high level. The KPO typically involves a component of Business Processing Outsourcing (BPO), Research Process Outsourcing (RPO) and Analysis Process Outsourcing (APO). KPO business entities provide typical domain-based processes, advanced analytical skills and business expertise, rather than just process expertise. KPO Industry is handling more amount of high skilled work other than the BPO Industry. While KPO derives its strength from the depth of knowledge, experience and judgment factor; BPO in contrast is more about size, volume and efficiency.

Cost savings, operational efficiencies, availability of and access to a highly skilled and talented workforce and improved quality are all underlying expectations in outsourcing high-end processes to India27. size of THE INDIAN KPO MARKET;-

According to industry estimates, in FY 2010, the size of the KPO industry would be worth $ 17 billion globally, out of which India would hog almost $ 12 bn. Nasscom and Evalueserve estimate that by 2010, 300,000 jobs would be created in the KPO space and 70% of these jobs are expected to come to India. But the picture is not as rosy as it looks. The KPO industry will have to wade through many challenges to keep up the expectations and predictions for its bright future.

One of the major problems faced by the KPO industry is the dearth of skilled manpower with domain expertise. The client’s expectations and quality requirements are very high. Also in the KPO space, client conversion and development takes longer compared to other processes. If India wants to get 70% of KPO jobs in FY2010 , then serious intervention at the educational level and investment in training are imperative.28. A BRIEF DESCRIPTION ABOUT KPO NEED:-

Knowledge Process Outsourcing can be used widely in the study of the market and to make calculated business decisions. Data management, data modeling, data mining, integration and data analysis, database content creation, management, development and optimization are some of the commonly available fields exposed to the use of KPO. Knowledge Process Outsourcing can also be used in finance and other accounting services from bookkeeping to auditing.

Knowledge Process Outsourcing can also be used in product and brand management, investment analysis, competitor analysis, competitive intelligence and benchmarking. It can also be used to develop marketing material such as flyers, newsletters, sales literature, pre sale literature, proposals, website promos, catalogues, press releases and to design questionnaires.29. KPO ENGAGEMENTS IN LEGAL SECTOR:-

Outsourcing your IPR needs is fast becoming a much-desired service. With several multi-national companies setting up their R&D departments here, India has become the main KPO option for customers all over the world. Services such as document writing, global filing, Patent Portfolio Analysis, Patent Mining and Administration, end-to-end Patent Application Drafting and Filing, Patentability Assessment, Patent Claims Mapping and Patent and Technology Landscaping are now outsourced to KPO service providers.

Patent attorneys are now employed by KPO service providers to give legal advise on infringements so that customers have access to the best wisdom for their research endeavours.

A KPO service provider can also write software, do license agreements, write legal briefs and memos like patents, drafting, legal research.30. USE of KPO IN WEB RESEARCH AND ANALYSIS

Knowledge Process Outsourcing can be used for online research and analysis. It can be used to develop a website, provide useful analyzed data, provide a better understanding of your customers and enhance your success rates.

Some of the services that can be outsourced to KPO service providers are website analysis, web site design and promotion, Search Engine Optimization (SEO), Online and e-mail marketing, link building, syndicated research, trend analysis, etc.

31. WHICH OTHER SECTORS CAN FURTHER EXPLORE THE USES OF KPO?

• Pharmaceutical Research

This is another field that can immensely benefit from knowledge process outsourcing. With the significance of research and development work in the industry, fields such as Pharma, Bio and Cheminformatics and Biotechnology can use several KPO services. Processes such as Database creation, protein annotation, signal process tool development and analysis, text and web mining, QSAR analysis etc. can be outsourced to a KPO firm. It is also used in the medical industry for clinical research and drug discovery.

• Engineering and Technology

Architectural services, Engineering Services for the development of automotive and aerospace industries and animation services can also be outsourced. Outsourcing design jobs to India will soon be a huge industry.

This latest trend in the world of manufacturing allows a product today to be conceived in the US, designed in India, manufactured in China and sold in markets across the globe.

VLSI (Very Large Scale Integrated) chip and engineering design, computer-aided simulation and engineering, Chip design and embedded systems (design jobs), Programming, software development and other forms of technological research can be offshored to firms in India offering KPO services.

• Writing

Services such as Journalism (editing and copywriting for newspapers and journals), Report Writing and Presentation, Content Writing, Illustrations and article writings for the internet, Technical Writing (manuals, help files, manuscripts, white papers, tutorials, guides etc), Blog Writing, English language services, Publishing and many more can be outsourced to professionals in the field employed by a KPO service provider.

Apart from above, KPO can also provide services in other fields such as business content development, legal writing, audits, courseware, proof reading, editing, accounting articles and many more.

• Publishing

Offshoring of publishing services to India continues to grow, both horizontally and vertically. New “horizontal” niches and opportunities across hitherto untapped segments of publishing are opening up as vendors develop vertical capabilities across the publishing value chain. The Indian publishing BPO services began with providing services for the STM segment where significant maturity has been built over the last decade. Having attained strong delivery capabilities, domain knowledge, automation and experience in a range of composition and editorial services, year 2008 appears to be inclined towards offshoring “project management services” in the STM segment. It is believed that rising vendor capabilities and existing relationships will drive increasing comfort levels amongst clients, in offshoring these high-value services, which provide tremendous cost-saving potential. This is

coincident with the trend of vendors offering end-to-end services and managing the entire project or projects, as opposed to project management being controlled by the client.

32. WHAT IS MBPO?

MBPO stands for Medical Business Process Outsourcing. Apollo Hospitals is the first major hospital to be getting into this. 33. WHAT IS HRO?

HRO stands for Human Resource Outsourcing.

HR outsourcing is a process in which a company uses the services of a third party to take care of its HR functions. A company may outsource a few or all of its HR related activities to a single or combination of service providers. HR outsourcing includes specialized activities such as training, payroll administration, employee database management, employee retention, employee benefits etc.34. WHAT IS RPO?

RPO stands for Research Process Outsourcing. This is popular in the biotech industry. Clients outsource their R&D work. This was termed reportedly by India’s biotech queen Kiran Mazumdar-Shaw.

RPO also stands for Recruitment Process Outsourcing. RPO is a key component of Human Resource Outsourcing (HRO). The RPO team basically handles all the recruitment work for their clients.35. WHAT ARE THE 4E’S USED IN BPOS?

Engagement, Education, Enactment and Enforcement framework is expected to ease the concerns of security and data privacy issues of a client in BPO engagement.

36. WHAT IS PROCUREMENT BPO?

Procurement BPO is transfer of management and execution of one of more procurement activities, transfer of the entire procurement sub-segments or transfer of the entire procurement business functions to an external provider. It offers increased productivity, cost reduction and business transformation to the client.37. WHAT DOES BOT MEAN?

BOT stands for build, operate and transfer. BOT is not applicable only to BPO. Generally clients who wish to have their captive centre partner with a local company, which builds and operates the centre for 2-3 years and then transfers it completely to the client.38. WHAT IS DNC [DO NOT CALL] LIST?

US Federal Trade Commission (FTC) Telemarketing Sales Rule bars companies from calling individuals who have registered themselves on DNC list. This hurts call center that make outbound calls [cold calling]. If a company calls an individual on the DNC list, the fine can be approximately $ 11,000. Call center have bought insurance to protect them from being fined.39. WHAT IS CALL BLASTING?

Call center sell by first playing a recorded message in American English. Then the real Customer Service Representative speaks in neutral/American accent. 40. WHAT DOES BFSI STAND FOR?

Banking, Financial Services and Insurance. This term is commonly used by IT/ITES/BPO companies to refer to the services they offer to companies in these domains. Banking may includecore banking, retail, private, corporate, investment, cards and the like. Financial Services may include stock-broking, payment gateways, mutual funds etc. Insurance covers both life andnon-life. A lot of data processing, application testing and software development activities are outsourced to companies that specialize in this domain

41. WHAT DOES “FOLLOW THE SUN” MODEL MEAN?

India is situated 5 hours ahead of UK, 10 hours ahead of New York and 13 hours ahead of Los Angeles. US and UK companies can claim overnight response capability because during their nighttime, it is daytime in India and agents in India can respond to emails during Indian business hours. This is known as follow the sun model.

42. IS THERE ANY RESTRICTION ABOUT WOMEN WORKING IN CALL CENTER AT NIGHT?

In Karnataka, the Legislative Assembly passed a bill, which provides for the use of services of women employees during night. Section 25 of the Act was modified to accommodate this change. It is likely that all other states have a similar law. Factories Act now allows women to work night shifts.

43. WHAT IS BOSS?

BOSS stands for Burn-Out Stress Syndrome. BOSS syndrome is seen very commonly among young people working in call center. The symptoms of this syndrome include chronic fatigue, insomnia and complete alteration of 24-hour biological rhythm of the body. Gastrointestinal problems are inevitable for those working at nights as the body is put under chronic stress. A potentially fatal increase in heart rhythm can result in severe chronic gynecological problems in women and sleep disorders in both men and women. Guidance about physical and mental co-ordination to meet the demands of a call centre job is necessary.

44. IS IT TRUE THAT ONE NEEDS VERY LOW SKILLED LABOUR FOR A BPO OPERATION?

Not true. It really depends upon what is the kind of job you are doing for your client. There are companies in India who are doing the R & D work for their clients.

45. WHAT DOES CAPTIVE OPERATION MEAN?

The multinational company sets up its own BPO operation instead of outsourcing to a third party. As problems with long-term offshore contracts, such as growing turnover and diminishing quality, become more pronounced, captive offshore operations—in which a company opens its own offshore subsidiary—are gaining favor. The captive model gives a company complete control over offshore operations and, by eliminating the middleman, can boost savings. In fact, Deloitte Touche Tohmatsu found that among financial services companies, captive operations appeared to be more capable than offshore contracts of improving savings and quality over time

Some companies may choose to go the captive route from the get-go, but more often than not it’s a model they develop after working with an offshore vendor for a few years. Some offshore vendors even offer a “build-operate-transfer” model that allows a company to purchase the offshore center from the vendor after a specified period of time.

E.g. GE Capital has its operations in Hyderabad and Gurgaon, Dell has an operation in Bangalore.46. WHAT IS OTTS?

OTTS stands for Outsourcing Through Six Sigma.

Six Sigma: Six Sigma is a methodology that provides business with the tools to improve the capability of their business processes. These increases performance and decrease in process variation leads to defect reduction and vast improvement in profits, employee morale and quality of product.

Six Sigma is a rigorous and a systematic methodology that utilizes information (management by facts) and statistical analysis to measure and improve a company’s operational performance, practice and systems by identifying and preventing ‘defects’ in manufacturing and service related processes in order to anticipate and exceed expectations of all the stakeholders to accomplish effectiveness.47. ARE THERE ANY CERTIFICATION FOR CALL CENTER LIKE ISO?

Certification is a useful way to advance your contact centre career or evaluate how your center stacks up against your peers. There are several certifications applicable to the BPO/Call Centre world. We have divided them into two broad categories: Individual (for employee) and Organizational (for employer) Certifications. 48. WHAT IS COPC CERTIFICATION?

COPC 2000: stands for Customer Operations Performance Centre. The COPC-2000® Standard was written in 1995 by a core group of users of call center services and associated distribution fulfillment operations, including representatives from American Express, Dell Computer Corp., Microsoft, Novell, L.L.Bean. COPC is the world’s leading authority on customer contact centre operations. COPC is used to improve customer service. In India it can cost anywhere from Rs. 20 to Rs. 25 lakhs [about $ 50,000] and about a year to get the COPC certification. The adoption rate for COPC is much faster in India than other countries, which is a very good sign.

The COPC® Certification Process provides a rigorous and balanced system for performance, empowering call centers to measure and improve all customer-touch activities. COPC Inc. takes a holistic approach, educating management teams to enhance operations by:

Balancing service, quality and cost Setting high-performance benchmark targets

Using objective data to monitor results

Setting and striving for realistic goals

Consistently meeting performance requirements and client expectations

49. ARE THERE ANY CAPABILITY MODELS FOR THE ITES INDUSTRY?

Information Technology Services Qualification Center (ITsqc) in Carnegie Mellon University has developed the eSourcing Capability Model (eSCMSM) for Service Providers to enable IT enabled sourcing service providers to appraise and improve their capability to provide consistently high quality sourcing services. The eSCM framework also will enable service providers to establish and manage continually improving relationships with clients.

50. WHAT DO I NEED TO ENTER THE BPO ARENA?

The following list is no different than for any other business. Domain or process knowledge— basically you need to know the customer’s business. Yes, this is in short supply.

• Customer access

• Market reputation

• Capital base.

51. DO ANY ASSOCIATIONS CATER TO THE BPO SEGMENT?

NASSCOM is the best organization that caters to the BPO segment. They have done a wonderful job in addressing the issues with the Government. They have a special group called SIGITES – Special Interest Group for IT Enabled Services.

ASSOCHAM too has an initiative for the BPO sector.

Business Process Industry Association of India (BPIAI) provides a network for members to jointly address challenges facing the call centre industry. The association was established in the year 2000. Be it Telecom Infrastructure, Cost of leased circuits, Labour laws, Training or Retention — all these issues can be addressed better in one voice.

On Aug 6, 2004 Medical Transcription firms in the country joined together to form the Indian Medical Transcription Industry Association (IMTIA) aiming to set best practices and propel growth of the $ 100 million sector.

The American Teleservices Association (ATA) represents the call center, trainers, consultants, and equipment suppliers that initiate, facilitate, and generate telephone, Internet, and email sales, service, and support.

The Centre for BPO Professionals, in India a non-profit organization, will facilitate a platform for BPO and call centre professionals to discuss their issues and find out solutions and help them maintain their employability and adaptability in the volatile market requirements.

52. ARE THERE ANY SET-UP GUIDELINES FROM THE GOVT. OF INDIA?

Yes there are setup guidelines. This is basically to get the DoT [Department of Telecom] clearance to operate a call centre. There is no prescribed application form, but you need to submit a set of documents.

Guidelines for setting up call centres in India

1. The Call Centres are permitted to Indian registered companies on non-exclusive basis.

2. The Call centers are registered under the under the Other Service Provider (OSP) category as defined in NTP'99.

3. The validity of this permission is up to 20 years from the date of issue of this letter.

4. 100% Foreign Direct Investment (FDI) is permitted in Call centers.

5. The call centers has to ensure that no change in the Indian or Foreign promoters / partners or their equity participation is made without prior approval of competent authority or as per prevailing regulations.

6. The Call centers can take the resources from any authorized service provider i.e. IPLC from the authorized International Long Distance operators and local leased line from any authorized Service providers.

7. The Service providers will examine the network diagram and grant resources to the OSP as per the terms and condition of this approval and the prevailing guidelines & policy for the service from where the resources are being taken. Both the Service provider and the OSP will be responsible for any violation in the use of the resources.

8. The domestic call centres are permitted to be set up, on a separate infrastructure. However, the request of the domestic call centre to run on the existing private networks will be evaluated on case to case basis.

9. Interconnectivity of two domestic call centres of the same organizations is permissible subject to further approval from DoT.

10. Interconnectivity of the international with domestic call centre is not permitted.

11. Interconnection of Call Centres of the same group of company is permissible for redundancy, back up and load balancing subject to the prior written approval from the DoT

12. In the International Call centers, no PSTN connectivity is permitted at the Indian end. Both inbound and outbound calls are permitted from the International call centers.

13. Internet and IPLC connectivity is permitted on the same LAN at the Indian end of the International Call Center with the condition that no voice/data traffic shall be permitted from ISP to other destinations via IPLC of the call center.

14. Internet connectivity is also permitted to Domestic call centers.

15. In case the company proposes to increase the bandwidth for the approved IPLC, the company can directly approach the authorized ILD for the same and intimate the same within 15 days to DoT. However, in case the company proposes to change the POP or add another POP, the company shall approach DoT for approval.

16. The International call centers are permitted to interconnect with the "Hot sites", for the purpose of back up and working during disaster at the International call centre location, provided that International Call Centre operators provides the following: -

1. A dedicated server/router at the hot site pertaining to the International Call Centre.

2. Local lease lines from the International Call Centre to the respective server dedicated for this International Call Centre at the hot site.

3. The local leased line from the hot site to the IPLC provider.

Hot sites can be used by the International Call Centre connected to it, only at the time of the disaster, by requesting the IPLC provider to switch its IPLC towards hot sites and informing the same to the DoT.

17. International Call Centre of the same Group of Company are permitted to cross map the seats for use during disaster. During normal days, original International Call Centre will use all seats but in case of disaster, cross-mapped seats will be vacated for use of the other International Call Centre and the same will be informed to the DoT.

53. CAN ITES COMPANIES SHARE BANDWIDTH?

The Govt. of India has decided that ITES can use the bandwidth on a time-sharing mode. It would not be treated as resale of bandwidth, which was banned in India. The move will allow firms to use the same facility and bandwidth to service Indian and international clients, which is not permitted under the present norms.54. WHY IS IT IMPORTANT TO HAVE THE CALL CENTRe IN MULTILOCATIONS?

(a) BPO clients would not like their work to be disrupted. To ensure continuity it is essential to be multi-locational, at times this could mean in different countries also.

(b) BPO companies need to constantly evaluate where they can get the best value for their money. Low-skill jobs like data entry could be outsourced to countries where labour is cheaper.

(c) Few countries have data access legislation that prevents databases and information from crossing geographical boundaries. The best way to solve this problem is to have a BPO center in that country itself.

55. WHAT IS IVR?

IVR stands for Integrated Voice Response. IVR systems are automated systems installed in customer contact/service center that help automate routine tasks such as account information, product information, schedule etc. IVR systems help automate many transactions that free employees tedious repetitive tasks. Customers can input their query using touch-tone phones and advanced IVRs support speech recognition.56. WHAT IS THE TALK ABOUT BPO COMPANIES BEING TAXED?

The Indian Government wants to examine whether a non-resident company, which has outsourcing deals with a BPO outfit in India, is subject to tax in India. Tax implications for the BPO sector (source: Express Computer).

Taxing BPO clients will increase the cost of transacting in India. This will make India less cost-effective.

Companies will be discouraged from outsourcing their processes to India; this will slow down the growth rate of the Indian BPO sector.

Indian BPO sector will lose out vis-à-vis its competitors like Philippines, China, Ireland, Hong Kong, etc., if Government adopts tough tax regimes.

The employment generated by the BPO sector might take a beating and the country will lose out significantly on the income tax charged on individual employees.

Overseas clients might perceive India as a country where taxation policies are not stable. India needs to project itself as a stable destination.

57. WHAT IS REPETITIVE VOICE INJURY (CALL CENTRe-ITIS)?

Call centre workers are suffering from a new industrial disease: repetitive voice injury, also dubbed as call centre-itis. Long hours and little opportunity for even a drink of water are behind the ‘disease’.58. WHAT IS GLOcALISATION?

Glocalisation is basically globalization plus localization, your ability to take the best from the world’s systems, best practices, best ideas, best brands, and mould them with your own culture in a balanced way so that you don’t feel overwhelmed by them. It means the tailoring of a company's offering to suit the interests of local markets across the world. Microsoft has brought out versions of Windows that are in the regional language.

59. HOW MANY JOBS FROM US ARE MOVING OFFSHORE?

Sr.  No.

Expected Job Category  

Number of U.S. Jobs Moving Offshore

    2010 2015

1 Management 117,835 88,2812 Business 161,722 48,0283 Computer 276,954 72,6324 Architecture   83,237 84,3475 Life Sciences 14,478 36,7706 Legal  34,673 74,6427 Art, Design 13,846 29,6398 Sales  97,321 26,564

9 Office 791,034 1,659,310

  TOTAL 1,591,101 3,320,213

Source: U.S. Department of Labor and Forrester Research, Inc.

60. WHICH ARE THE IMPORTANT IT/ITES CITIES IN INDIA?

City Focus Prominent firms Employees

Delhi (includes Gurgaon and Noida)

Call center, transaction

GE, American Express, STMicroelectronics, processing, chip design, software Wipro Spectramind, Convergys, Daksh, ExL

73,000

Mumbai Financial research, back office, back office, software

TCS, MphasiS, i-flex, Morgan Stanley, Citigroup

62,050

Bangalore Chip design, software, boi-informatics, call center, IT consulting, tax processing

Infosys, Wipro, Intel, IBM, SAP, SAS, Dell, Tisco, TI, Motorola, HP, Oracle, Yahoo, AOL, E & Y, Accenture

109,500

Hyderabad Software, back office, product design

HSBC, Satyam, Microsoft

36,500

Chennai Software, transaction processing, processing, animation

Cognizant, World Bank, Standard Chartered, Polaris, EDS, Pentamedia

51,100

Kolkata Consulting, software

PWC, IBM, ITC Infotech, TCS

7,300

Pune Call center, chip design,  embedded software

MsourcE, C-DAC, Persistent Systems, Zensar

7,300

61. WHAT WOULD THE COST SAVINGS FOR US COMPANIES TYPICALLY BE, IF THEY OPERATED IN INDIA?

Datamonitor, a leading UK-based business information company, research indicates that 67-72% of costs to call center operating in the US/UK is directly linked to manpower costs. India, on the other hand spends only 33-40% of costs on manpower. This includes training, benefits and other incentives for labor.62. WHAT ARE THE CURRENT SALARIES IN THE BPO WORLD IN INDIA?

(a) Customer Care Representatives: Rs. 1 lakh – Rs. 3 lakh per annum

(b) Team Leaders: Rs. 17,000 – Rs. 30,000 per month

(c) Managers: Rs. 3 lakhs – Rs. 5.5 lakhs per annum

(d) Training Heads: Rs. 8 lakhs – Rs. 12 lakhs per annum

(e) Training Managers: Rs. 5 lakhs – Rs. 8 lakhs per annum

(f) Trainers: Rs. 2 lakhs – Rs. 5 lakhs per annum.

Specialized ITeS professionals who possess MBA, BE, B.Tech, C.A. [CPA] and other expert qualifications or experience may be paid higher salaries depending upon the expertise required for the desired work profile and their level of experience.

Besides the salary employees are paid incentives depending upon attendance regularity, achievement of targets.63. THE MARKET SIZE ESTIMATES of bpo

Indian Market size estimates of BPO

Nasscom-McKinsey: IT-BPO exports (including hardware exports) reached USD 47.3 billion in FY2009 as against USD 40.9 billion in FY2008, a growth of 16 per cent. Indian can capture 35% of global BPO offshore market and 12% of the market for other services such as animation, content development and design services.

Statistics for Reference:

Financial year Exports (USD bn) Domestic (INR bn)

FY 08-09 47.1 590

FY 09-10 49.7 662

FY 10-11 (outlook) 56-57 761-775

Global Market Size Estimates of BPO    

McKinsey & Co. predicts global market for IT-enabled services to be over $ 1.6 trillion by 2010. replacing $ 142 billion in 2008.

These $ 142 billion can be broken up and shown as below

Customer Interaction Services 33.0Finance & Accounting Services   15.0Translation, Transcription & Localization 2.0

Engineering & Design 1.2HR Services 5.0Data Search, Integration & Management 44.0

Remote Education 18.0Networking Consulting & Management  15.0

Website Services 5.0Market Research  3.0Total 141.2

Source: NASSCOM McKinsey Study - India IT Strategies  In that the opportunity for India will be $ 17 billion.

Indian IT-BPO performance

The sector is estimated to aggregate revenues of USD 88.1 billion in FY2011, with the IT software and services sector (excluding hardware) accounting for USD 76.1 billion of revenues. During this period, direct employment is expected to reach nearly 2.5 million, an addition of 240,000 employees, while indirect job creation is estimated at 8.3 million. As a proportion of national GDP, the sector revenues have grown from 1.2 per cent in FY1998 to an estimated 6.4 per cent in FY 2011. Its share of total Indian exports

(merchandise plus services) increased from less than 4 per cent in FY1998 to 26 per cent in FY2011.

Exports market: Export revenues are estimated to gross USD 59 billion in FY2011 accounting for a 2 million workforce.

Geographic focus: The year was characterized by a consistent demand from the US, which increased its share to 61.5 per cent. Emerging markets of Asia Pacific and Rest of the world also contributed significantly to overall growth.

Vertical Markets: While the sector’s vertical market mix is well balanced across several mature and emerging sectors, FY2011 was characterized by broad based demand across traditional segments such as Banking, Financial Services and Insurance (BFSI), but also new emerging verticals of retail, Healthcare, Media and Utilities.

Service Lines: Within exports, IT Services segment was the fastest growing segment, growing by 22.7 per cent over FY2010, and aggregating export

revenues of USD 33.5 billion, accounting for 57 per cent of total exports. Indian IT service offerings have evolved from application development and maintenance, to emerge as full service players providing testing services, infrastructure services, consulting and system integration. The coming of a new decade heralds a strategic shift for IT services organizations, from a ‘one factory, one customer’ model to a ‘one factory, all customers’ model. Central to this strategy is the growing customer acceptance of Cloud-based solutions which offer best in class services at reduced capital expenditure levels. The BPO segment grew by 14 per cent to reach USD 14.1 billion in FY2011. The year also witnessed the next phase of BPO sector evolution - BPO 3.0 - characterized by greater breadth and depth of services,

process re-engineering across the value chain, increased delivery of analytics and knowledge based services through platforms, strong domestic market focus and SMB centric delivery models. During the year, the BPO sector growth was affected by delayed decision making and deal restructuring in the first half of the year, though it picked up momentum in the second half. Changing demand patterns led to revamp of operations for service providers - high focus on client relationships, mining existing clients and restructured operations to provide focused vertical solutions. Further, the industry focused on achieving excellence in business process management, and delivering strong transformational benefits creating revenue impact for clients.

The engineering design and products development segments generated revenues of USD 9 billion in FY2011; growing by 13.6 per cent, driven by increasing use of electronics, fuel efficiency norms, convergence of local markets, and localized products. Increasing confidence in relationships between customers and service providers successfully executing a variety of activities across low-medium-high complexity projects has led to increasingly larger sizes of projects being sourced from India.

Domestic market: Domestic IT-BPO revenues excluding hardware are expected to grow at almost 16 per cent to reach ` 787 billion in FY2011. Strong economic growth, rapid advancement in technology infrastructure, increasingly competitive Indian organizations, enhanced focus by the government and emergence of business models that help provide IT to new customer segments are the key drivers for increased technology adoption in India

IT services is one of the fastest growing segment in the Indian domestic market, rising by 16.8 per cent to reach ` 501 billion, driven by localized strategies designed by service providers.

Domestic BPO segment is expected to grow by 16.9 per cent in FY2011, to reach ` 127 billion, driven by demand from voice based services, in addition to adoption from emerging verticals, new customer segments, and value based transformational outsourcing platforms

Indian software product segment is estimated to grow by 14 per cent to reach ` 157 billion, fueled by replacement of in-house software applications to standardized products from large organizations and innovative start-ups

Government sector is a key catalyst for increased IT adoption- through sectors reforms that encourage IT acceptance, National eGovernance Programmes (NeGP) , and the Unique Identification Development Authority of India (UIDAI) programme that creates large scale IT infrastructure and promotes corporate participation

Source: NASSCOM ITES-BPO : Strategic Review 2011

64. WHICH ARE THE MAIN REVENUE AREAS FOR INDIAN BPO COMPANIES?

Service Line First Estimate

Second Estimate

HR 5.4 3.5-4.0Customer Care 4.1 8.0-8.5Payment Services 2.9 3.0-3.5

Content Development 2.6 2.5-3.0

Administration 1.3 1.5-2.0Finance 0.7 2.5-3.0Figures in $ billion    

65. WITH THE GROWING DEMAND IN THE ITES-BPO SECTOR, WHAT IS THE FUTURE OF THE MARKET GOING TO BE?

The U.S. is expected to be the largest source market for the ITes accounting for nearly 60% of the market. Europe is expected to be the second largest market for the ITes sector, accounting for 22% of total spending which is expected to reach Euro 129 billion by 2008. U.K. and Ireland being the main markets for BPO in Europe are likely to account for about 45% of the European market followed by countries like Germany, Switzerland and Austria with a 20% share. The fastest growth expected within the European market is in the U.K. and Ireland with a CAGR of 14%. However the maximum growth is expected in the Asia-Pacific region, with ITes-BPO spending to grow at 14.7% for the next two years.

The underlying theme of 2010 has been the steady recovery from recession. Worldwide GDP, which had declined by 0.6 per cent in 2009, grew 5 per cent in 2010 and is expected to stabilize at about 4.4 per cent in 2011. Developing nations continue to grow faster than the developed countries by at least three times. IT spend is directly linked to growth in GDP and in line with this trend, IT spend in 2011 is expected to grow nearly 4 per cent. Worldwide IT spending will also benefit from the accelerated recovery in emerging markets, which will generate more than half of all new IT spending worldwide in 2011. In 2011, growth will reflect new demand for IT goods and services, not pent-up demand from prior years. 2011 will also see a major surge in the use of private and public cloud and mobile computing on a variety of devices and through a range of new apps. Hardware is likely to grow the fastest at about 7 per cent, led by the refresh cycle in the Government sector. Shipments of app-capable, non-PC mobile devices (smart phones , media tablets) are expected to outnumber PC shipments. 66. HOW BIG IS THE IT INFRASTRUCTURE OUTSOURCING MARKET?

IT infrastructure is critical for firms globally. Organizations invest huge amount of money to build IT infrastructure that support their business goals and objectives, but many fail to set up even the most basic tools to effectively manage their IT resources.

Help desk management, configuration management, and application packaging and migration services are some of the infrastructure-based activities that are currently being delivered from an offshore location and they may serve as platforms into broader outsourcing deals.67. ARE INDIAN BPOS PURCHASING LIABILITY INSURANCE?

IT and BPO companies were exposed to an intensely litigious international environment. This was one of the major factors that was driving their purchase of such policies. The insurance placements were entirely made with insurers which had international ratings above ‘BBB’ assigned by globally recognized ratings agencies.

More mid-size companies were also taking cover, as the outsourcing revenue models of foreign companies drove them. Among the major risks Indian companies face from these entities are glitches in software products, including deviations from product specifications and issues relating to breach of contractual deadlines. The cover against such risks all constituted liability cover.68. WHAT ARE THE RATES CHARGED BY INDIAN BPOs FOR TELEMARKETING

(OUTBOUND) TO US?

Anywhere from $ 9-12/hour. The login hours is anywhere between 6.5 and 7.5 hrs excluding lunch & tea breaks. In more than 95% of the projects the billing is by log in hours and not man month basis.

Billing is based on a base rate plus incentive for achieving the target which will give you anywhere between $ 9 and $ 12 per hr. $ 12 is probably the best case scenario.69. WHICH OTHER COUNTRY (IES) IS/ARE A SERIOUS COMPETITOR OF INDIA?

Philippines boast of strong skills in finance and accounting. The other countries India is competing with are Mexico, Canada and Ireland. In terms of cost, Philippines and Malaysia are competitive with India. However, India’s main competitors in the BPO space produce a fraction of the graduates that India does.

Cost of Education in Cities

Country USP Limitation

Philippines Understands the US market; voice work; low attrition

More expensive than India; small talent pool

Canada, Ireland, Australia

Understands the US market; high-end skills

High costs

South Africa Time zone similar to Europe; 25% cost saving, good for niche

Skill shortage

work  China Low costs Quality of English

not goodRussia Technology skills Poor infrastructure;

corruption; language

Czech Republic, Hungary

European language skills

Small talent pool; high costs

Mexico Immediate neighbour of US, 30% cheaper than skills

Good only for low-end jobs US; Spanish

Source: NASSCOM, IDC, www.bpoindia.org, Business Objects

Factors driving Indian BPO Industry :

Transformational Business impact – Client business transformation happening through-

- Virtualized solutioning – A number of organizations have restructured themselves around verticals and Centers of Excellences - so as to develop and deliver end to end services keeping in mind customer needs, creating products aimed at growing emerging markets and creating a substantial revenue impact for them. These virtualized business units act as a source of innovation and development of proof of concept solutions

- Technology enablement – Development of solutions around platforms, cloud based products integrating business intelligence, and application development tools are proving to be game changers for an increasing set of customers. This is also prompting customers to move from CAPEX to OPEX based models

- Process innovation/re-engineering – Coupled with automation and six sigma skills, incremental set of enhancements imbibing best in class learning and practices in established service delivery processes also have the ability to create wide ranging transformation for clients

• Service Delivery maturity – India is the most mature outsourcing market, with Indian service providers having developed end to end service delivery capabilities around all verticals. Further, there is increased globalization in service delivery, cross border collaboration and partnerships to enhance service offerings, and reengineering of the talent pool for greater productivity and efficiency

• Scalability – India’s scale and flexibility is unique- a vast labour pool, network of Tier II/III cities offering further cost reduction and increased infrastructure spend are the cornerstones to this advantage offered by India over other locations. The demand side has also been maturing gradually, moving away from commoditized services at lowest possible cost to demand for higher end solutions and measurable business value. There is a highly rationalized and competent provider base which is again one factor where India scores over other countries

• Sustainability – Industry focusing on sustainable practices – including diversity, green and corporate social responsibility

IMPACT OF BPO on INDIA :

1. Contributing to the nation’s economy –

Increasing contribution to country’s GDP : Between FY2002 and FY2009, the contribution of the IT-BPO industry to the Services segment of GDP witnessed maximum incremental growth of 10 per cent, where contribution by other segments either declined or remained almost fl at. As a result, while share of other components of GDP (Agriculture and Industry) declined over FY2002-2009, share of Services increased from 56.3 per cent to 62.6 per cent.

Strong tax contributions : The industry contributes almost INR 15,000 crore in direct taxes with INR 8,000 crore contributed from IT-BPO companies and the rest INR 7,000 crore from direct employees of the industry. Though the industry receives benefits in terms of lower effective tax rates and tax holidays for select units, the overall direct tax contribution by the industry to the exchequer outweighs the tax benefits received by the STPI units, which are estimated at INR 10,000 crore.

2. Contributing to regional development across India –

Impact on Tier 1 cities : Tier 1 locations generated over 92 per cent of industry revenues in FY 2009. The industry contributes 14 per cent of total GDP from Tier 1 states, and these states are among the most economically powerful in India contributing to 34 per cent of national GDP. Further, the IT-BPO industry has generated direct industry employment of 1.9 million, and indirect employment of 7.3 million. Additionally, the industry has led to the creation of over 180 million sq ft of office space in Tier 1 locations. 77 per cent of all STPI units are located in such locations, along with 70 per cent of all operational IT SEZs.

Impact on Tier 2/3 cities : Tier 2/3 cities generated USD 4.1 billion – 7 per cent of the industry revenues – in FY 2009. The contribution has tripled within the last two years. These cities also accounted for nearly 25 per cent of India’s domestic IT-BPO market revenues in FY2009. Additionally, the industry has created 1.7 lakh

jobs in Tier 2/3 cities, 8 per cent of total industry employment. Notably, the growth in IT-BPO jobs in

Tier 2/3 cities (1.5X) has been higher than that in tier I cities (1.3X) over the last two years.

Impact on Rural areas : Rural BPOs, some of which have been operational for less than three years have together generated a total of USD 10 million in revenues in FY 2009. These centers together employ 5,000 people in rural areas.

3. Enabling environment for innovation –

Growing R&D spend : As per the NASSCOM-Evalueserve survey, IT services companies spent around 0.5-1 per cent of their revenues on R&D while companies engaged in software product development and engineering spent around 6-7 per cent of their revenues

Strengthening role in IP creation: The efforts of IT-BPO companies towards boosting R&D are perfectly corroborated by the rising numbers of patents fi led by Indian companies especially over the past few years. Patents in the computer/ electronics segment have increased 30 times in the last five years. In 2009, almost 1000 patents were granted in software related sub-segment in the Computer/Electronics category. Top Indian IT companies viz. TCS, Infosys, and Wipro are aggressively filing more patent applications in India and abroad.

Source : NASSCOM Reports70. what are the ELEMENTS OF BACK-OFFICE TRANSACTION PROCESSING

SERVICES?

While back-office transaction processing may be fundamental and formulaic, the accuracy and timeliness of the information it delivers are the legs upon which today’s companies stand to meet their responsibilities and mitigate personal and professional risk. CFOs can outsource a variety of transaction processing tasks. They include:

Order Entry, Processing and Management

• Sales order entry and checking

• Product configuration checking

• Contract Reconciliation

• Quotations

Billing, Invoicing and Payments

• Loans processing

• Claims processing

• Application processing

• Reconciliations

• Accounts payable

• Time and expense reimbursement

• Vendor payments

• Benefits administration

• Medicare insurance claims

Credit Card Services

• Check processing

• Credit and collections management

• Credit and/or debit card processing

Litigation Support Services

• Insurance claims processing

• Class action document management

Supply Chain Management

• Third-party and fourth-party logistics

• Transportation management

• Warehousing

71. WHAT IS SWOT OF A BPO IN INDIA ?

Strengths

• Highly skilled, English-speaking workforce.

• Cheaper workforce than their Western counterparts. The wage difference is as high as 70-80 per cent when compared to their Western counterparts.

• Lower attrition rates than in the West.

• Dedicated workforce aiming at making a long-term career in the field.

• Round-the-clock advantage for Western companies due to the huge time difference.

• Lower response time with efficient and effective service.

Weaknesses

• The cost of telecom and network infrastructure is much higher in India than in the US.

• Intense competition within India to get the work, where big players snatch the work from smaller firms.

Scarce foreign language skills other than English.

Opportunities

• Indian firms should work closely with Western governments and assuage their concerns and issues.

• India can be branded as a quality ITES destination rather than a low-cost destination.

Horizontal and Vertical expansion of existing customer base into new markets.

Threats

• The anti-outsourcing legislation in the US state of New Jersey. Three more states in the United States are planning legislation against outsourcing Conneticut, Missouri and Wisconsin.

• Workers in British Telecom have protested against outsourcing of work to Indian BPO companies.

• Other destinations such as China, Philippines and South Africa could have an edge on the cost factor.

72. WHAT A SMALL AND MEDIUM SIZE CA FIRMS CAN OFFER AS A BPO TO INTERNATIONAL CLIENTS

Accounts receivable

• Client Billing

• Suspense Clearance

• Encoding Errors

• Client Settlement

Accounts payable

• Cash Application/Allocation

• Credit Balance Refunds

• Payment Research

• Third Party Settlement

Accounts reconciliation

• Bank

• General Ledger

• Assets and Liabilities

• Branch Accounting

Book keeping

• Journal Entries

• Cash and Bank Payment Entries

• Credit Card Accounting Entries

• Statutory Dues

Payroll processing

• General Ledger Posting Report

• Quarterly Local Tax Return

• Form 941 Federal Tax Return

• Year-end Local Tax Reconciliation

• Form 940 Federal

Reporting and analysis

• Statutory Reporting

• Financial Statement Analysis

National clients

• Concurrent Audit

• Stock Audit

• Client settlement for banks under securitization laws

• Book Debts Recovery

• Fixed Asset verification

• Credit Cards Processing

• Investigation Audit

• Processing of tax returns

• Customer Complaints Management

73. How BPOS are faring in other developing countries?

BPO in — Philippines

This industry is regarded as one of the fastest growing industries in the world. International investment consultancy firm McKinsey & Co. predicts that the demand for outsourcing services will reach $ 180 billion in 2010, with the customer contact services, finance and accounting, and human resource sub-sectors taking up the biggest shares. When it comes to the trend in primary business requirements, experts are seeing a shift from cost-effectiveness to skills quality and competence. This development all the more strengthens the Philippines’ position as an emerging global leader in the BPO industry (BPAP 2006).

BPO industry in the Philippines has grown 46% annually since 2006. This boom is led by demand for offshore call centers. Industry estimates put the number of people employed by the BPO sector by end of 2008 at 435,000 (vs 372,000 in 2007). The BPO output for 2008

was US$ 6.1 billion (vs US$ 4.5B in 2007), putting the Philippines as the 3rd largest BPO destination (15%) after India (37%) and Canada (27%). It is expected to hit US$ 7.2 billion to 7.5 billion in 2009 reviews. The industry was optimistic of 18% growth in headcount 2009.

Overall, Philippine BPO is forecast to earn between US $11 to 13 billion and employing 900,000 additional people in 2010. To achieve and sustain this rapid growth, the Philippine government is offering significant fiscal and non-fiscal incentives to attract foreign direct investment in these industries as part of the 2007 Investment Priorities Plan. The IPP was prepared by the Board of Investments (BOI), as the lead agency in promoting investments, focused on the sectors identified in the Medium-Term Philippine Development Plan 2004-2010.

The Philippines received the Best Off shoring Destination of the Year Award for 2009 for its BPO sector. The award was bestowed to the Philippines by the United Kingdom's National Outsourcing Association [3] in recognition of the healthy economic environment that attracts foreign business to locate their operations in the country. This is the second time that the Philippines won the award.

BPO in — China

In China industrial growth suffers from restrictions on its resources and environment, the country has been paying more attention to its services industry in order to make its economic growth consistent. Software development is one of its targets. The BPO services sector in China was valued at $7,823.4m in 2008. Growing at a CAGR of 13.8% between 2008 and 2012, this sector will reach a value of $1,4947.5m by the end of the period. But, more importantly, with the rapid development of telecom infrastructure, software development is no longer centralized. 

This IDC study identifies the market opportunities via five key business functions (procurement, finance and accounting, customer care, training, and human resources) and seven vertical processing services (billing processing, card processing, claims processing, data management, loan service, payment processing, and policyholder processing) in China. "In China, processing services still make up the larger pie and account for approximately two times the size of the BPO market. The total China spending on processing services cumulatively totaled approximately US$1.4 billion in 2006. IDC projects that the cumulative total of the processing services market will increase to more than US$3 billion by 2011, at a five-year CAGR of about 17%. However, the China BPO market is just at a nascent stage. The BPO services market (only key horizontal business functional segments) in 2006 was US$856.3 million, growing 25.3% over 2005. IDC forecasts that the five key BPO segments in China will have significant growth in the next five years, with a 2006–2011 CAGR of 25.9%," says Judy Ou, senior analyst, Software and Services Group, IDC China.

With a huge talent pool and competitive price, China views business process outsourcing as one of the potential growth sectors in the future.  At the recently held International Software Summit a key forum of ChinaSoft 2007 in Chengdu, China — five of the seven enterprise were talking about outsourcing in China. China marks as clear favorite as it has strong presence of foreign companies. MNCs  such as Oracle, IBM, HP and NEC have set up outsourcing center in the country. Even though language remains a big issue for China in venturing into English voice-based BPO businesses, its geographic and cultural knowledge of Japan and South Korea has provided China an edge over other competitors in these two markets.

When compare to India, which has the worlds’ major BPO player, are facing talent shortage and higher attrition rate, experts believe that similar industries in China are expected to

grow very fast. In 2006, Chinas overseas BPO business was valued at about US $ 1.4 billion. It is expected to reach US $ 5.5-6.3 billion by 2010. India is currently the leader in outsourcing and IT services. However, studies show that China is expected to lead the pack much earlier than 2015.

BPO in-Vietnam

Vietnamese government is trying hard to boost its rising economy by pushing itself into higher-technology and higher-margin businesses. The country has drawn the sketches to acquire business from better-established countries. When a leading British recruitment agency Harvey Nash PLC began looking for an offshore hub for its new software-development business six years ago, Vietnam never figured in its choice. Vietnam till then was in the business of making bicycles, shoes and clothes cheaper than anybody else. While established countries like India, the Philippines and South Africa were already up the race latching on more outsourcing business. At the later stage Harvey Nashs when sat down to assess the options, Vietnam was the top contender. Factor like low wages, improving English-language skills and technical proficiency helped the balance in its favor. Harvey Nashs in partnership with FPT Software Corp.,(A unit of Vietnam technology company FPT Corp.,) gave Vietnam an edge over other, and that to at a time when attrition and wages were on the rise in India. Resulting the above factor, Today Harvey Nash employs around 1,500 people across Vietnam through its own business and its associate FPT. Together they develop billing software for telecom companies such as Belgiums Belgacom SA, creates applications to manage human resources at Honda Motor Co.s British unit, and tests software systems for Discovery Channel and NBC Universals. It seems many prospective investors had long sensed that Vietnam is capable of doing much more after it opened up its economy in the late 1980s. Prior to this Vietnam was mostly viewed as a state that depends on its agricultural exports and low-wage manufacturing. But that scenario has changed totally. During Microsoft Corp. founder Bill Gates visits to Vietnam last year, he said “there was no reason why Vietnam could not follow India into software development and other forms of outsourcing”.

According to the latest report of International Data Corp. (IDC), most economic sectors in Vietnam have the need to expand IT investments, including Business Process Outsourcing (BPO) services, businesses developing in remote and rural markets and government-based projects. New technology services models will also push IT vendors to better understand end-users’ demands and revisit their business offerings.

IT services will be the biggest contributor to IT spending growth rate, which is expected to stage year-on-year 18.5% growth to surpass US$347 million in 2011. Hardware spending is expected to post 17% year-on-year growth and packaged software is projected to grow at 14.4%.

 Nguyen Lam, country director of IDC Vietnam, said a number of factors such as increased inflation, rising trade deficit, exchange rate risk, weak execution of the national IT master plan and shortage of skilled labor are threatening the speed of development of the ICT market in Vietnam. However, 2011 will mark a transformative year for Vietnam’s information and telecommunications marketplace, he said.

 The Government recently announced its plans to become a strong developer in ICT by 2020 and government-based projects in Hanoi, HCMC and Danang cities are predicted to bring about more ICT spending from the public sector. This will give opportunities for IT developments in a wide range of sectors like healthcare, education, energy networks, ecological environment, transportation, and communications.

Under IDC predictions, data center services will further expand this year with strong growth. Besides big datacenters such as Vinadata, Thang Long, Matbao, leading service providers such as Lac Viet, Sao Bac Dau, HPT, Viettel, VDC and FPT have also invested in their own datacenters in 2010.

IDC also predicts that 3G deployments will raise mobile operators’ value-added services as Vietnam’s 3G subscribers are expected to reach 8 million in 2011. The 3G geographic coverage in Vietnam will be close to 98% by the end of 2012, boosting the supply and demand of more 3G-based mobile services in 2011.

Intel Corporation decision to build a $1 billion semiconductor factory near Ho Chi Minh City was a turning point that started the course of IT investment.  This move by Intel sent positive signals to other major technology companies about the comfort level in investing in Vietnam. Investors find the industrial land cheaper than China. Wages are about a third lower than in Chinas industrial coastal regions. And with a population of almost 90 million people, half of whom are under 30 years old, Vietnams talent pool is deep and increasing. Vietnam may still be some way far from becoming the next India or China - but one cannot rule out the feasibility of its getting that major share of information-technology outsourcing market in the coming years.