Sample Materials of SSC CGL (Tier -3) Study Kit

Subject: Essay

Topic: BPO boom in India

Business Process Outsourcing (BPO) is an important component of Business Strategy of major organizations worldwide. BPO is positively related to the quest for more efficient organizational designs: cost reduction, productivity growth and innovative capabilities. Hence, BPO is important source for strategic advantage. Many recent market research surveys have indicated the CEO’s around the world across all the companies feel that BPO is key strategy for survival in today extremely competitive business environment. BPO offers many benefits. It allows the organization to concentrate on their core activities by releasing resources which have constrained in non-core activities. It helps organization cut costs by reducing HR Costs – salary bills, perks, employee benefits, administration overheads. The client only has to pay for useful quality work duly completed by BPO. It helps to reduce recruitment and training expenses. It helps Improve quality of service and productivity by bringing greater accountability and transparency in production standards. It enables an organization to get increasing volume of paperwork and routine administration work done quicker and at significantly lesser cost. BPO also offer 24 x 7 x 365 service availability which is very important in customer service related operations.
ABOUT A CENTURY AGO, GEORGE SANTAYANA noted that, “Those who cannot remember the past, are condemned to repeat it.” Today, that sentiment is applicable to Indian BPO aspirants. When I hear about companies—Indian and foreign—creating a near frenzy in setting up BPO operations in India and dominating the world back office processing marketplace, I only hope that they have spent time studying the history of the Indian IT Services industry.

Let’s look at this history. Today, Indian IT services providers are enjoying tremendous growth in their revenue. The success of IT services providers has been based on offering skilled IT services at a much lower cost than comparable American or European companies. This business model is rooted in the history of Indian companies offering low cost data entry services. The formula for “winning” business from indigenous, well-established companies was based on creating a market by providing programming services at a much cheaper rate. Y2K helped feed this frenzy and many Indian IT services companies got into the business. It also helped that India produced well-qualified software engineers from its schools, and that there was a ready labor pool available to do low cost programming. The mantra became: “Come to India, where IT is done cheaper.”

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BPO or Business Process Outsourcing is an entire industry in itself wherein businesses in a certain country outsource some of their operations (usually back office) to other locations in the world to cut costs by using the cheap labor in these countries. This helps them to increase their profits as well as concentrate on their core operations. The Business Process Outsourcing industry in India caters mostly to Western operations of multinational corporations. Annual revenues from BPOs are around $11 billion, around 1% of GDP.

Outsourcing to India began in the early 1980s when many European airlines started using Delhi as a base for back office operations. Later, American Express consolidated its JAPAC (Japan and Asia Pacific) back office operations into New Delhi. This center was headed by Raman Roy. In the 1990s, Jack Welch of GE was persuaded to consider Gurgaon as a base for back office operations. By 2002, all major Indian software organizations were into BPO, including Infosys, HCL, Satyam, TCS and Patni. The entry of international 3rd party BPO players like Convergys and SITEL also strengthened the BPO movement in India. Service arms of organizations like Accenture, IBM, Hewlett Packard and Dell also set up shop in India. The BPO industry flourished in India because it could deliver services at a low cost. But increases in infrastructure costs, real estate costs, and salaries raised BPO costs significantly. So Indian BPOs began shifting their operations from Tier-1 cities like Chennai, Bangalore, Hyderabad, Delhi and Mumbai to Tier-2 and Tier-3 cities like Mysore, Trivandrum, Kochi, Chandigarh, Mohali, etc.

The transformation of rural India kicked off with the emergence of rural BPOs. The global BPO Industry is estimated to be worth 120-150 billion dollars. India enjoys 5-6% share of the total industry, and 63% share of the offshore component.

Indian IT companies achieved quality certifications (CMM, ISO etc.) in order to create a service value in addition to lower labor rates. However, my experience has been that little has changed. Lower cost is still the key value proposition presented by Indian companies. It makes one wonder: what is the value proposition? Cheaper rates; where is the service advantage? Cheaper rates. Where is the differentiation with the Western market place? Cheaper rates. The new mantra still is: “Come to India, where CMM level 5 IT service is done cheaper.” Yet given their history of moving from low priced data entry services to low price programming services, Indian companies apparently have not learned the lessons of the past. What do you find when you look at the offerings from these companies? Most of them are touting “low level” transaction processing services at a cheaper cost. For example, they offer a staffed call center (glamorized as Customer Relations Management (CRM) services), or an accounts payable/receivable operation madeimportant as Cash Management services.

A bankcard application data entry and processing center is called a “Credit Management services center” and keypunching services are disguised under a new name-medical transcription services. In the name of BPO, these companies are creating a business niche where rates will become the battleground, cheaper services will be the value proposition and competition will be among each other. To me, the mantra has become: “Come to India where transaction processing services are done cheaper.” Some controversies have erupted around the industry. BPO employees are scornfully described as cyber coolies. Also, the rape and murder of a few female employees by car drivers raised safety issues. Despite all this, there is no doubt that the BPO industry has raised the standard of life for many young Indians thereby swelling the ranks of the Indian middle class and creating an economic boom. However the recent global economic downturn has impacted the industry negatively as new contracts from the US and other client nations might dry up in the wake of demands that jobs in these countries should remain within their borders.

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