The Hindu Business Line : IT’s on hire

BPO players are favouring the ‘hosted model’, using infrastructure offered by a third party provider instead of investing on their own. Heed the call to cut costs..

Smaller firms are showing a great deal of interest in the hosted solution as it suits their business model.

Bijoy Ghosh

Vendor tunes in.

Vishwanath Kulkarni

Talk of cause and effect. The prevailing economic downturn, besides impacting the revenues of Indian IT and BPO firms, has also curbed their spending power, forcing them to review and realign their cost structures. As a result, BPO firms are looking to convert capital expenditure into operational expenditure by adopting the hosted model of call centre infrastructure solutions, even as they continue to expand their operations.

Unlike in the traditional, independent call centre model, wherein the vendor invests in setting up the infrastructure, in a hosted model, a third party provider who is normally a telecom service operator sets up and manages the technology infrastructure and applications, for which the BPO firms pay per seat usage charges on a recurring basis.

Such a hosted model, wherein the entire hardware — PCs, IP phones, routers, switches besides the bandwidth — and call centre applications such as computer telephony integration, interactive voice response, workforce management and speech technology, among others, are owned by the service provider, helps these companies to avoid upfront heavy investments.

Indian BPO companies seem to be showing increasing interest in the hosted model. British network service provider Cable and Wireless, which launched a hosted solutions platform in India about a year ago, recently signed two large deals with Indian IT firms that are expanding their BPO operations in the Philippines and China.

“We have closed two large deals with Indian IT vendors who will be completely riding on our platform,” says Sunanda Das, managing director of Cable & Wireless’ India operations, while refusing to disclose the names, citing non-disclosure agreements. Cable and Wireless has partnered with Cisco and Avaya for developing the solution.

“A call that originates for these customers from the US to be serviced from the Philippines will be riding into our network and technology,” says Das.

The fact that cash-rich companies prefer to adopt the hosted model highlights the benefit offered by such a model and at the same time also reflects the cautious stance taken by these firms in an uncertain economic environment. Companies such as Infosys BPO, Hinduja Global Solutions and WNS Global are already running their operations on a hosted model either partially or fully. “It is part of our deal structures with clients,” says Amitabh Chaudhry, CEO of Infosys BPO, on the company’s strategy to adopt such a model. Clients of Infosys such as British Telecom have been offering hosted solutions for some time now.

Mohammad Saif, Deputy Director for Consulting at research firm Frost & Sullivan, says the hosted solution offers advantages in the current environment as clients can continue to focus on their core competence rather than divert their attention to maintaining the IT services and infrastructure. “It does not involve upfront investment on equipment, resulting in lower entry costs, besides providing quicker return on investments,” Saif adds.

The companies can ask for customised services and not the blanket cover as it would help them save cost and meet their objectives. “The hosted-model results in a cost saving of 10-15 per cent as compared with own investments,” says Anand Vora, chief financial officer of Hinduja Global Solutions. Typically, technology-related investments account for 70-80 per cent of the total expansion costs for a BPO firm.

A BPO firm invests anywhere between $5,000 and $6,000 per seat for the technology infrastructure, while the real-estate costs depend on the location and the city, says Das.

Opens door to small players

Raman Roy, chairman and managing director of Quattro BPO Solutions, says the distinction between small and large players on terms such as technology and money power will go away. In a hosted model, even the small players can boast of offering services on advanced technologies.

“As technology costs form a significant part of capex, we would be interested in looking at such a hosted model that looks very attractive,” says Aashu Calapa, EVP, Human Resources at Firstsource Solutions. The company is also exploring options to take over or lease out the small facilities of IT and BPO firms that have shut shop.

In a hosted model, the growth of the network service provider, who bears the upfront costs, is directly linked to the growth of the BPO vendor. “It is an investment-hungry model and we grow as our customers grow,” says Das, adding that customers are looking at service providers who are flexible. This is primarily because customers for BPO firms may come and go, as they are under pressure in a weak economic environment.

For the service provider, the return on investment (ROI) will be prolonged in a hosted model. “We don’t make the money in the early years of the contract. We start with negative returns and it takes about two-and-a-half years to break even depending on the volumes,” says Das, adding typical deal sizes with a BPO firm are generally of five years and above. About 500 seats is the minimum threshold for a deal to work for a network service provider.

Das says C&W’s current platform is aimed at the larger players, while the company is developing a solution targeted at small and medium-sized BPO vendors serving some 100-200 seats. The smaller firms are showing a great deal of interest in the hosted solution as it suits their business model. “For the smaller players, the price is currently not competitive. For people who have volumes, it will work,” Das adds.

Aviva Plc, the world’s fifth largest insurance group, was one of the large customers of C&W on a hosted model. Aviva sold off its captive centres in India last year to BPO firm WNS, which is running on the C&W platform.

“It is a matter of pure operational business decision and is left to the convenience of the vendors,” says Ashutosh Vaidya, head of BPO at Wipro, when asked whether the company is looking at adopting such a model. Wipro, Vaidya says, has preferred to invest in its own infrastructure rather than renting it out on a hosted platform, as it believes that a vendor in any BPO engagement can recover the costs in a two-to-three years.

Avinash Vashistha, CEO of Tholons, an offshore advisory firm, says a hosted solution helps vendors to scale up quickly depending on the client requirements. Long-term and large BPO players are unlikely to adopt such a model, he adds.

The emergence of regional and medium-sized call centres is driving the growth of the hosted call centres, says Saif. The hosted platform is most ideal for SMBs and domestic-oriented call centres as they lower the total cost of ownership and allow for improved flexibility in operations. Medium-sized call centres or call centres that move to tier II and tier III cities could access the advanced infrastructure through the high bandwidth network, at no risk of ownership, points out Saif.

In 2008, the hosted solutions market for contact centres stood at $38 million in India and is expected to grow to $120 million by 2012, according to Frost & Sullivan. The revenue growth rate in 2008 was around 22 per cent and is expected to reach around 35 per cent by 2012 as the popularity of the hosted model and solutions increases.

Bharti-Airtel, which is a key customer for Hinduja Global Solutions, also acts as a network service provider. “Such a hosted model will help the service provider have a complete control over their data flow,” Vora adds.

Refurbish Opportunity

Das says the hosted model is gaining traction and existing customers are looking at adopting it for their delivery centre, where the technology refurbish or upgradation is due in the near-term.

At present, BPO firms that run on the traditional call centre model are seen delaying their technology refurbishing cycle that comes up every three to four years, due to cost-related issues. “I expect many of them will go for refurbishing their systems by the end of the year,” says Das, adding that even companies are looking at the model for their delivery centres in India.

vishwa@thehindu.co.in

Related Stories:
RSA set to expand services for data centres
Global outsourcing market deal volume 7% lower in Q1
Opportunity in the midst of crisis

More Stories on : Outsourcing | Business Models

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
IT’s on hire

Beyond words...

Play your own game

‘Let market decide India’s choice’

A career path in the BPO industry?

Invitation or bait?

Game for the challenge?

Cyber quest

Lack of transparency in call centres

Cartoon