by Dinesh Goel, Partner, ISG
The fact that cost arbitrage almost single handedly led to the growth of the global BPO service delivery (a.k.a offshoring) industry is the least of the reasons for embracing outsourcing within the domestic market of India. Prima facie, cost arbitrage appears infeasible as most service providers have a dominant presence in large cities with steel glass buildings and a well-compensated workforce.
Recently, I had the privilege to participate in a panel discussion about the India domestic market at a BPO conference in Delhi and Mumbai. The topic of discussion was “What will lead to the growth of the BPO industry in India, if anything?”
The short answer is that growth will be propelled by all the reasons for outsourcing except for cost: outsourcing for improved operational efficiency, outsourcing for running lean and mean processes, for driving continual productivity in the processes, for creating accountability with demanding service levels, for handing off a non-core function to a third party for whom it is core, and so on.
So, why is the industry not already growing at a scorching pace?
This is primarily for two reasons: 1) For the industry to grow, we need a healthy and competitive supply market that did not exist 2-3 years ago (save for call center-oriented work), and 2) we have yet to see the bandwagon effect from the experiences of early adopters.
It is not a question of “if” but rather “when” the market will witness the bandwagon effect resulting in BPO industry growth for all good reasons other than cost. Most leading service providers are focused on serving the local market in India with their best solutions, and some early movers have bought into signing up with them. Based on my experience advising in the India market so far, cost arbitrage is also available if we evaluate the business case on a total cost of ownership basis over the life of the contract. This is in view of all the drivers of sourcing (which do not offer sitting cost arbitrage) that will manifest themselves in overall improved cost-value proposition over time for the buyer.
Taking the argument even farther, I also suggest that this growth will be true for most emerging markets, not just India. Buyer maturity and delivery value propositions will drive the growth of the BPO industry in these markets as most of the delivery will be localized and will spread out to the hinterland with a lower or comparable cost structure. The BPO industry is here to stay. The undercurrent of market forces is resulting in a more competitive and end-customer friendly business ecosystem.