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India: Growth of Non-Voice Services

By Samanvay Sharma

Riding on the back of customer relationship management (CRM) and voice-related services, the global BPO industry stands at US$150 billion to date. Despite a relatively slow growth rate in the last few years, the industry is expected to steadily grow in the medium run. By 2017, the industry is likely to witness a CAGR of nearly 7%. Unlike yesteryears, growth will be driven by a rise in demand for non-voice services.

According to a recent report published by ValueNotes, “Malaysia’s Global Business Services Outlook – October 2013”, the global non-voice BPO segment, like human resource management (HRM), finance & accounting (F&A) and data processing, will witness a faster growth of CAGR 15% till 2017 as compared to the voice BPO segment (CRM).

Citing the reasons for this growth, the report states that globally organisations are moving beyond straightforward cost arbitrage. As an alternative, they are now looking at BPO to help them comprehensively overhaul the way they do business.

BPO is more and more being used as an instrument for transforming and bringing innovation to companies. BPO services are going beyond the basic service buckets, making it hard to allocate simple labels to service offerings. As a result, service providers are differentiating services and positioning themselves as high value-added services provider.

CURRENT BPO LANDSCAPE

Of the total global BPO industry, the contribution of offshored services is just under 30%, which is expected to grow at a CAGR of 18% for the next three years. India is still the most preferred destination amongst buyers.

However, for voice-related services, the Philippines has taken over as the market leader surpassing India in the last two years. For India, it is actually not as bad as it sounds because the global demand of non-voice services is going to grow faster when compared to traditional voice-related services.

With more than a 50% share of the total global offshoring industry, India witnessed a rapid growth in demand for its BPO services in the last few years. In 2012, the total size of the offshoring industry in India stood at US$23 billion, which is expected to reach US$40 billion by 2017.

In addition to a clear advantage of having more than a thousand service providers, another differentiating factor for India is that the top five companies in the country are actually larger than a few competing nations put together in terms of revenues and manpower. This is the magnitude and size of the Indian industry that clearly is a distinct advantage over its competitors.

The Banking, Financial services and Insurance (BFSI) sector is expected to be a major contributor to the BPO industry in the next five years. Services like credit card processing, mortgage processing and insurance management services will be fastest among the growing services.

According to India’s National Association of Software and Services Companies, India (NASSCOM), vertical- or industry-specific services like mortgage processing in BFSI have been growing at a rate of around 20% CAGR for the last 3-4 years, much faster than the generic BPO services like F&A. Services related to BFSI contribute to around 35% of the total outsourcing market in India.

According to Sudhir Deoras, Chairman of the Confederation of Indian Industry (CII), the volatile economic scenario has forced banks to try various business models, either to increase their bottom line or manage risks better. The increased commoditisation of service offerings from banks places incessant demand on them to adopt variable cost structures, increase revenues, improve products and services, expand market share and also achieve non-linear revenue growth. This will see a strong demand for outsourcing services to India and other service provider countries that are strong in BFSI.

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Procurement services is one of the fastest growing service categories under BPO and will show a growth of CAGR 10% till 2017 due to a high demand from the logistics sector. As the BPO industry matures, more industry- and activity-specific niche outsourcing services like store support in retail, freight management in logistics, and value-added services in telecom will be in greater demand.

Another industry vertical to see increased demand of BPO services is healthcare. Transcription services and prescription management & coding have been some of the fastest growing services within the industry.

The future growth of the BPO industry will be driven by industry-specific specialised BPO services which will help transform BPOs’ image to engagement and management partners.

THE INDIAN EDGE

With a large pool of English speaking graduates, India became one of the pioneer destinations to offer CRM and voice support services for international clients. Also being among the first movers in the outsourcing wave, India has a very mature market with vendors offering services across the length and breadth of the BPO value chain.

One of the major contributors to the success of India is the growth of shared services centres in the country.

Currently there are more than a hundred captives in India, of which 40% are for BFSI followed by technology companies, which constitute to around 25%. Some of the major global in-house captives (GICs) or shared service centres (SSC) in financial services are HSBC Shared Services and Software Development, Nomura India Services, Bank of America and iNautix (subsidiary of BNY Mellon).

Some of these units have evolved into a third-party service provider as they have started servicing other banks and financial institutes apart from their parent company. Genpact (60,000 +  FTEs) is a similar example. It was a GIC for GE Capital and Financial Services, but gradually evolved into an individual entity.

Some captives are being sold to third-party service providers, which has significantly helped to improve the service capability of these third-party service providers. Some examples are Citigroup selling a major chunk of its captive centre business to TCS and Wipro, UBS to Cognizant, AIG to MphasiS (40,000+ FTEs), and Aviva to WNS (25,000+FTEs).

This captive to third-party route has helped India evolve as the most preferred non-voice BPO service destination, and it will continue to boost the growth of the country’s supplier landscape.

Given the need for more services, many more captives are expected to open up in India in the next five years, taking the already large industry to even greater heights. Earlier this year, there was news from players like Grant Thornton, Barclays, and Zurich Insurance group of setting up either new centres or expanding their existing facilities in 2013.

Samanvay Sharma is an Analyst at ValueNotes, a research firm based in Pune, India.

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