The country’s unmatched value proposition for customers—based on the factors such as cost savings, productivity gains and quality improvements have given India an edge in the global ITES-BPO marketplace.
Indian BPO industry SWOT analysis
Porter’s five forces analysis for the Indian BPO industry
Barriers to Entry
- Capital: The capital requirement for starting a BPO outfit is a mere $10 million. This has led to an abundance of BPO firms (over 300 as of this year), most of which are small players that have failed to deliver.
- Poor Infrastructure: While telecom networks are state of the art, getting a connection still takes up to three months. Unreliable power supply is forcing units to create their own back-ups. Roads are bad and airports are in dire need of repairs and upgrades.
- Timelines: Due to government support for this industry, typically it takes four months to start an operation. (Exhibit 3)
Overall the barrier to entry is low, but to move up the value chain after entry is difficult.
Competition within industry
- Initially competition within industry was almost non-existent, as this was a nascent industry. However, within a few years many small players have entered the market, driving down billing rates and making the competition intense. The two distinct types of competition in this market are from independent BPOs and IT-major owned BPOs. Major BPO players are listed in Exhibit 4.
Threat of substitutes
Today, potential customers look at whether they should
- go for a captive centre to support their back-office processes/operations
- go for an American company like Convergys that they are familiar with
- go for ITES arms of large Indian software firms they may already be dealing with
- go for third party 100%-BPO focused firms.
- There are too many BPO firms chasing a few major clients. This is due to the emergence of multitude of undifferentiated players. Thus the clients can call the shots and play them against each other to derive the best bargain. We can say that buyer power is high in this industry.
- One of the major resources required is employees. There is no dearth of well-educated workforce in India, but due to attrition it is difficult to recruit and retain trained workforce.
- To reduce power of infrastructure suppliers, BPOs like Daksh have made alliances with competing suppliers. For example, Daksh has alliances with both HP and IBM for computing infrastructure. Similarly for long distance carrier services, it has alliances with AT&T, Sprint and MCI.
Supplier power is therefore limited.
Daksh – a leading BPO player
It all began in July 1999. Four people working with US multinationals-like Motorola, 3COM, Xerox and Pepsi - saw a report that came out with a stark finding: "67% of online transactions are being abandoned due to inadequate customer support."
By January 2000, the four - Sanjeev Aggarwal (CEO of Daksh), Pavan Vaish, MJ Arvind and Venkat Tedanki - had set up Daksh to offer web-based support services to global clients.
After being set up in Jan 2000, Daksh got its first client, a Fortune 500 retailer, in April 2000. It quickly ramped up capacity, and added a financial client as well. In 2001, it organized itself into SBUs, the first Indian BPO company to do so. In the same year it got Citigroup to invest more capital, and also won quality awards. It went on to add insurance clients, and added data entry processing into its service portfolio. In Dec 2002, it started working on multi-country expansion. In 2003, it added an airline client, and its employee strength crossed 3000. In Jun of 2003, it was declared India’s largest BPO company. By September of the same year, the employee strength crossed 5000. Jan 2004 saw Daksh opening its center in Philippines. Currently Daksh has over 6000 employees. In April 2004, IBM acquired Daksh for $170m. Exhibit 5 shows the revenue growth since 2001.
Daksh’s capabilities can be analyzed by the 5P model which they used very effectively. The 5 P’s are People, Platform, Processes, Performance and Project Management. (Exhibit 6)
Daksh had a well defined recruitment policy. It always hired university educated best of breed teams with wide industry experience. The Company gave 160 hrs of training per year per agent. Based on manpower requirements, employees have the flexibility to move across businesses to provide them with better exposure and growth opportunities.
India is known to have poor infrastructure. Daksh overcame this problem to offer one of the largest telecom networks in India at 70 mbps. It relied on multiple connective paths, for instance optical fiber, satellite etc. It placed sales offices in its largest markets, US and UK. Daksh also had three levels of power backup.
Daksh is going after industry leading quality certification and six sigma framework. It has well-defined and multi-level escalation and resolution processes. Daksh also has a three tier feedback mechanism for productivity and quality assurance. Apart from all this, to share best practices, Daksh set up in-house forums to take these practices forward.
Daksh consistently outperformed SLAs on productivity, quality and schedule. They had a proper tracking mechanism using a dashboard to track metrics. Daksh had documented business continuity plan. “It has been the smoothest rollout of any vendor outsourcing program”, remarked a Director of a global vendor management giant.
Daksh has a TPM Center of Excellence. They excel in seamless transition of work from onsite to offshore. They also have a TPM Toolkit to ensure successful implementation and meeting of deadlines. Their project management team has relevant experience and skills for transitioning and ongoing operations.
Core Competencies of Daksh (Call Processing)
Competitive Advantages of Daksh
100% BPO Focus
Daksh has core competency in servicing clients and is focused on BPO services unlike many other companies that provide this service as an addition to their core business.
Unique Co-sourcing Model
Daksh uses dedicated work areas and people and uses cultural integration to service clients, thus ensuring a seamless extension of the client’s organization. (Exhibit 7)
Dedicated Business Units
Daksh has organized itself into domain-based business units. These units comprise of people who have related experience and understand the client’s business.
Daksh is the only BPO player in India that has been profitable since inception. This outstanding track record has also ensured investments and they are well capitalized and backed by strong investors.
Daksh is structured for growth and has exceptional experience in handling scalability and flexibility
Daksh pioneered the BPO business in India, and has a good understanding of the business. It has successfully serviced major Fortune 500 customers, and is well placed to move up the value chain.
Wipro Spectramind – leading from the front
Wipro Spectramind was founded by Raman Roy in March 2000. Raman Roy and his team are credited with pioneering the remote services industry in India.
Wipro Spectramind’s Capabilities
Wipro Spectramind started operations in March 2000 and currently has more than 10 clients. The company provides call-center and remote processing services including inbound voice processes (technical help desks, customer service), outbound voice processes (telemarketing, collection calls), CRM, accounting services, transaction processing and Web-based services.
Wipro Spectramind has approximately 10,000 service professionals providing BPO services operating out of their offshore locations in Delhi, Mumbai, Chennai and Pune in India and global offices in US, UK and Canada. Wipro Spectramind handles more than 4 million calls & 500,000 e-mails per month coupled with an equal number of back-office transactions.
Wipro’s process model includes a tried and tested Transition Toolkit (Exhibit 8) to support transition management by ensuring that there is a documented methodology with formats, tools, guidelines and past learnings in place to aid the transition team in de-risking the transition of a customer's processes and reducing the pain of migration as much as possible.
Wipro exceeds industry standards when it comes to Phase Containment (Wipro 87%, Industry 58%), Schedule Adherence (Wipro 91%, Industry 55%) and Productivity (Wipro 74%, Industry 58%). (Source Bangalore SPIN Benchmarking, SIG 2001-2002 Report and Software Assessments Benchmark and Best Practices-Capers Jones, 2000)
Wipro has a total quality program called VelociQ that seamlessly integrates multiple quality approaches that deliver tangible benefits to customers: (Exhibit 9)
Wipro focuses on extensive training for its employees:
- Pre-Process Training - Process/Industry driven, ranges from two to three weeks
- Process Training - Customer driven, usually ranges from two to five weeks
- On-the-Job Training - Agents work in a controlled environment under supervision before being allowed on the floor.
- Robust infrastructure with built-in Telecom and Architectural redundancies for risk mitigation.
- Multiple modes - Fiber, Radio and Rooftop earth station
- Built in IT redundancies for uninterrupted operation
- Three independent Internet Leased Circuits from three different ISPs are installed for data access and redundancy.
- Several measures to ensure data back-ups and security of our networks:
Threats & Challenges to BPO Industry
A survey puts attrition in the BPO segment to be around 25-30% and states that this happens in a timeframe of just couple of weeks after joining. The reasons cited for this trend are non-standard working hours and lack of enrichment potential. To reduce attrition, both Daksh and Spectramind have invested in their people by giving them world-class training.
Daksh has executed a number of employee relations programs and a host of other activities to break the monotony of work and to generate enthusiasm and team spirit. Activities like look-alike contests, dramatics, dance choreography, caricature competitions and team log-out sessions are very popular at Daksh. Families of the high performers are invited to share in the success of their children/spouses. All of this goes a long way in helping maintain a high level of employee satisfaction, which in turn, helps retention. (Exhibit 10)
Nevertheless, it's a tough process. Daksh has an attrition rate of around 35 per cent in voice-based processes and between 20-25 % in e-mail-based processes. Similarly, at Wipro Spectramind the departure rates are between 28- 32 % annually. "Creating a feeling of stickiness helps bring down attrition" says S Varadarajan, who has the revealing title of vice president talent engagement and development at Wipro Spectramind.
Wipro Spectramind discovered that lots of staffers were quitting around the start of the academic year and that's why they tied up with BITS Pilani for its MCA course and Symbiosis for its MBA course. Classes are held periodically in the office and so are the examinations. Says S Varadarajan, vice president, Wipro Spectramind: "This has worked for us as only 2% of agents enrolled for these programs have left us in the last six months."
Commoditization – No differentiation
The industry is undergoing commoditization. All the players have started following similar processes, and there is very little differentiation left. One cannot go by track records in this nascent industry because of very short length of history.
US and UK are the major markets for BPO companies. The outsourcing practice has ignited the resentment of labor unions and politicians in the United States, who criticize the loss of American jobs to cheap overseas labor. This can lead to loss of business for Indian BPO firms.
Independent BPO firms would face tremendous amount of profit pressures as the business demands strong branding and deep pockets to sustain growth. Many Indian outsourcing firms lack the funds to expand and are looking for investments from big players or venture capital funds. Some are also considering share offers to the public. The need for funds, association with a strong brand and operational flexibility seem to driving this trend.
On the other hand, global giants such as IBM are looking to acquire several thousand low-paid employees in a short time to provide outsourcing services to their clients.
The BPO business is capital intensive. Continuous investment is needed in infrastructure, buildings and bandwidth. Deal sizes are also getting bigger, for which financial strength is important. For example, if the BPO wants to bid for a $100 million deal, it helps to show a very strong balance sheet to the prospective customer.
In an early stage, cash flows are nowhere near investment requirements. So additional funding is required at every stage. Most independent BPOs start off with VC funding. So funding options for a BPO are either more VC funding, an IPO or an acquisition.
For some smaller BPO deals, there could have been another reason. In the first three four years, many of them have not met their business milestones. Naturally, they are not able to get the second round of VC funding.
Road ahead - scaling up the value chain
Value-added services are clearly the key advantage that Indian BPO players have over other similar players in a highly competitive market. Industry analysts feel that the Indian BPO/ITES industry is looking at exploiting the business opportunity in the same way the software industry had done five years ago. For instance, Indian software firms pounced on the Y2K opportunity and then leveraged their cost advantage to bag bigger projects.
The need of the hour is to develop process and business expertise in addition to technical and operational expertise. For creating a niche in a highly competitive market, Daksh is focusing on three key verticals: BFSI (banking, finance and insurance), telecom and high technology. But scaling up operations to reach global size is not so easy. There are good opportunities for Indian companies at the high-end of the value chain like insurance and pharmaceuticals. The challenge for Indian players is to develop a track record of success in operations, process implementation and service delivery that develops customer trust to outsource more complex processes.
One profitable sector, besides finance and telecom, is HR outsourcing. This sector is changing from the traditional cost-plus and fixed price model to value-based pricing and gain sharing. But there are challenges for Indian vendors like application localization, high switching costs and global security policies. Indian vendors have to get around such issues to be able to scale up the value chain.
Though all the top players recognize the importance of moving up the value chain, most of them agree that the way forward is to find a balance between the mass segment and the niche segment as there are business opportunities in both.
Though the company is operating in the same geographies as its competitors, one of the advantages it has over them is its de-risked revenue strategy. Instead of one or two anchor clients contributing to the bulk (80-90 percent) of business, Daksh has all its 10 customers contributing solidly to revenues. So, even if one customer goes, the loss to the business will not be drastic.
Daksh should focus on niche vertical applications, broad shared services, simple bulk transactions and high volume vertical processes. It should also focus on healthcare vertical, as it is a promising area with potential of $800m business.
Going ahead, the company should significantly expand Global ITES Services business and increase the number and penetration of Global ITES Services clients. It should focus on services-led growth in the IT market in India and aggressively build awareness of the Wipro brand name. It can also pursue selective acquisition of IT companies.
BITS: Birla Institute of Technology and Science
BPO: Business Process Outsourcing
CEO: Chief Executive Officer
FDI: Foreign Direct Investment
IP: Intellectual Property
ISO: International Organization for Standardization
ITES: Information Technology Enabled Services
MBA: Masters of Business Administration
MCA: Masters of Computer Application
NASSCOM: National Association of Software and Services Companies
PCMM: People Capability Maturity Model
SBU: Strategic Business Unit
SEI-CMM: Software Engineering Institute – Capability Maturity Model
SLA: Service Level Agreement
SWOT: Strengths, Weaknesses, Opportunities, Threats
TPM : Transitioning and Project Management
BPO Market in India
Source: Nasscom-McKinsey KPMG 2003, BRICs Report 2003, Industry Data
Comparative Costs between India and the US
Typical time frame for setting up an ITES-BPO firm in India
Ranking of BPO Players
Revenue Growth of Daksh
The 5P Model
Wipro’s Transition toolkit (Service Delivery model)
Wipro’s quality framework
Employee Satisfaction Ratings