BPO BOOSTERS

In a survey of end-users released at the 2001 Outsourcing World Summit, the major reasons cited for outsourcing were: cost reduction, focus on core competencies, improved quality, increased speed-to-market, the need for innovation and the requirement to conserve capital. Some of these factors have been discussed below:

Source: The 2001 Outsourcing World Summit, Micheal F. Corbett & Associates

A significant shift in customer expectations His has led, over the past few years to companies considering outsourcing portions of their business activities. The customer today is far more discerning and demanding than he was a few years ago. According to a study by CM Insight Ltd., a leading market research organization based in the UK, customers today want a choice in the way they interface with service organizations. They expect technology to be made simple and effective, combined with staff that cares. They also want vendor companies to keep their service promise. In light of these growing customer expectations, companies are looking for providing far more specialized care and handholding than they did earlier. The fact that they are often not equipped with the relevant skills and resources to provide such services is fueling the trend toward outsourcing.

Focusing on core competencies "Do what you do best and outsource the rest", is a simple yet compelling quote attributed to management guru Tom Peters. What we are seeing today is an implementation of this maxim, with companies focusing on their key strengths and mission critical issues and outsourcing the rest predominantly non-core, yet business critical processes. ITES, according to analysts lets companies focus on core competencies to increase efficiency without having to invest in people and technology. It also helps companies become more profitable and leads to better service levels than internal departments can provide. Management can focus on their main line of activity without spending time and energy on back office operations.

Cost cutting A major outcome of IT enabled outsourcing is stated to be cost cutting. According to a recent Nasscom-McKinsey study on the ITES market, off shoring is stated to provide significant cost savings opportunities across verticals. The study indicates that ITES could result in 40-60 percent cost savings for processes out shored. Some of the segments where these savings were extremely pronounced were the insurance, retail financial services/retail banking, pharmaceuticals, telecom, automotive and airline sectors. The cost cutting is achieved on account of the fact that ITES/BPO translates into low capital investments. Even the best-in-class support services are available at far lower costs. For example, the average annual compensation for a qualified accountant in the United States is $ 35,000 a year. The services of a similarly qualified accountant can be available in India at $ 3,000 a year

The lack of relevant manpower A scarcity of skilled manpower is being cited as one of the reason as to why global companies are outsourcing or out locating their business to countries where relevant manpower exists. Firms of all sizes are turning to offshore companies also because of the rising cost of domestic labor. The cause is further helped by the proliferation of Internet technologies, which is dissolving geographical boundaries and making distance of little consequence.

ITES an attractive investment opportunity Yet another driver of the ITES market is the fact that today, ITES/BPO is being regarded as an attractive investment opportunity. BPO vendors typically sign medium to long-term contracts with reasonably stable annuity revenue streams. The value of these contracts has also increased steadily over the years and is gradually approaching the level of multi-billion dollar IT outsourcing contracts. In the last 2 years such significant BPO contracts have been signed by large corporates such as BP Amoco, Bank of America, Nortel, etc.

ITES transforming traditional businesses Based on positive feedback, ITES is being recognized as a key tool for transforming traditional business operations into supercharged value-creating engines that generate better solutions for customers and greater returns for shareholders.

Gains in efficiency/profitability Studies have also indicated that organizations that outsource their IT services are more efficient and profitable than those who try to do it all in-house. Savings in terms of time and money lead to reduced costs and increased competitiveness. Besides, IT enabled outsourcing provides multinationals with the opportunity of acquiring the specific in-country expertise by outsourcing activities to local entities. The outsourcing teams or companies have the relevant knowledge of local regulatory issues, labor and tax laws and the socio-political norms. They make it easier for the foreign investor to get a permit, set up shop and be up and running fast enough.