The Hindu Business Line : The race gets tighter

Four of the top 10 Indian BPO exporters for fiscal 2009, according to Nasscom’s rankings, were the Tier-I IT services vendors. As their investments in building the BPO business begin to pay off, the top tier IT services vendors such as TCS, Wipro, Infosys and HCL are catching up with their standalone counterparts or pure-play vendors such as Genpact and WNS.

The revenue gap between the IT services firms and the pure-play vendors seemed to be narrowing down in the past two to three years. The largest BPO firm Genpact Ltd, which earns about a fifth of its revenues from IT services offerings, crossed the billion-dollar-mark last fiscal, followed by WNS that grossed a little over half a billion.

The top tier IT services vendors are in the $300-500 million range with TCS at the top followed by Wipro BPO, Infosys BPO and HCL.

“The IT services firms are getting their BPO act together,” says Neeraj Bhargava, CEO, WNS, acknowledging the rise.

“While some of them have been around, TCS, with the Citi acquisition, has caught up. But, there’s enough room for growth for every one,” Bhargava adds.

Wipro was the first among the large players to foray into BPO with the acquisition of Spectramind way back in 2002, and its larger rivals TCS and Infosys have managed to catch up.

TCS, the latest to do an acquisition, bought the captive unit of Citi last fiscal, which gave it significant scale and helped expand its delivery footprint. TCS clocked $415 million or about 6 per cent of its $6-billion total revenues for the fiscal.

The acquisition of Philips captive, besides assuring steady revenues, helped Infosys enhance delivery capabilities in key geographies such as Poland and Thailand.

IT-BPO synergy

These vendors say having a strong IT services capability is helping them grow BPO operations even as customers across the globe, battling the worst-ever economic crisis, look for integrated capabilities to transform their businesses. “Customers are buying our strong IT-BPO synergy story,” says Abid Ali Neemuchwala, global head of BPO at the country’s largest IT exporter TCS, which is eyeing $3 billion in BPO revenues over the next few years.

TCS, which considers BPO a key growth engine, has seen a compounded annual growth rate of 15 per cent in the past four years. For customers, BPO is discretionary in nature and is required to run the business, unlike IT which is largely non-discretionary. In the current environment, customers are looking at lowering costs through operational excellence, Neemuchwala adds.

Like TCS, Wipro is also witnessing significant traction for its combination of IT and BPO offerings. “We believe that combining IT services operations with BPO is the right way to do things,” says Ashutosh Vaidya, head of Wipro BPO, adding that integrated offerings have helped the company to do better than the pure-play BPOs.

For customers to run any business process there is a need for underlying IT applications, explains Vaidya. To drive any transformation, a vendor needs people, process, policies and technology.

While the pure-play BPOs have been able to deliver value to customers leveraging people and processes from an offshore location, the IT services vendors, besides taking advantage of people and processes, are a notch ahead leveraging technology and policies through their IT capabilities, mainly consulting, says Vaidya.

Potent combination

A deal from Origin Energy won last quarter by Wipro was a good example of how strong BPO and IT services capabilities complement each other. “Our consulting, IT and BPO capabilities are a potent combination,” says Vaidya, emphasising the importance of all three capabilities to work in tandem. The BPO process and IT services team need to interact constantly to deliver value to customers more effectively. “There is no BPO process without IT,” he adds.

Recently, Wipro BPO received the ‘highest average rating’ among Indian service providers from IDC for providing value-added business process redesign and management. IDC reports that Wipro has been instrumental in defining what the next-generation BPO services will be about. Renewed demand for the integrated IT-BPO deals as customers gear up for recovery post recession seemed to be favouring the IT services vendors. “One in every two deals are with a component of IT-based transformation,” says TCS’ Neemuchwala, adding that such a trend would make it difficult for the standalone firms. Earlier, the market had not matured and customers undertook IT and BPO as separate deals. However, with the ongoing vendor consolidation customers are looking for integrated offerings to achieve increased value, Neemuchwala adds.

BPO exports on the rise

The Indian BPO players, both standalone and IT services companies, continue to invest in newer geographies and verticals. The share of BPO in the country’s total IT-BPO exports has been on the rise with BPO accounting for almost half of IT services exports. In fiscal 2009, according to Nasscom, the BPO exports grew 16.5 per cent, registering revenues of $12.7 billion, while the IT services exports saw a 15 per cent rise to $26.5 billion. Nasscom forecast that BPO growth would be led by procurement outsourcing, analytics, finance and account outsourcing and knowledge process outsourcing.

The Nasscom McKinsey Perspective 2020 study pegs the addressable market for the BPO industry at $630 million.

Size of operations

“In the past, the BPO units of IT heritage companies had to compete internally to get their share of investments. However, with the BPO revenues growing faster than their IT operations or full services in recent past, companies are investing more in growing their BPO operations,” says T.J. Singh, Director - Research at Gartner Inc.

The BPO operations of TCS, Wipro, and Infosys are still small compared with Genpact, which is growing aggressively, says Singh.

Size does matter in BPO and pure-play vendors such as Aegis BPO, which continue to have a good appetite for buys, is looking at aggressive growth, Singh adds.

“The ongoing consolidation in the IT services space will definitely put pressure on the top four Indian vendors. They need to have a strategy for BPO,” says Singh.

However, pure-play vendors believe that not having an IT services component is not a deterrent and has not made any difference to their growth. To overcome their lack of capabilities, the pure-play vendors are partnering with specialist companies wherever necessary. For example, WNS partnered with a European IT services vendor to roll out an ERP package for one of its global customers across 27 locations recently.

Vendors such as WNS and 24/7 Customer believe it is the business unit head or the chief financial officer of an organisation who sees a direct benefit, and decides on outsourcing a particular function or process, and not the chief information officer who calls the shots while outsourcing an IT function. “Our buyers are not the IT guys but people who support the line of business,” says V. Bharatwaj, Chief Marketing Officer at 24/7 Customer, which has an internal IT team that has been involved in building IPs and platforms that the company leverages to deliver services efficiently.

However, both the pure-play and the IT services companies continue to invest and build platforms as the majority of them shift to newer pricing models such as transaction-based or outcome-based. These players and industry analysts believe platform-based BPO will drive future growth for the industry.

vishwa@thehindu.co.in

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