Now, it is at an inflexion point with the unique opportunity to spread into the rapidly growing mommies market. The following study outlines the domestic BOP market in India, and provides an insight into the future outlook for the industry by analyzing current trends and industry practices. Indian’s impressive economic growth, resulting in increased consumption, has fueled its growth across various sectors in India. There is significant headroom in the addressable BOP opportunity for domestic buyers and providers, and there are sizeable untapped opportunities across a wide spectrum of segments.
Further, the country’s domestic BOP industry is favorably positioned to infinite from its established delivery capabilities, which exert a considerable influence on buyers’ decision to opt for outsourcing. This study is based on research covering the demand and supply side of the domestic BOP market in India and primary research covering five areas: service-line demand evolution, sector-wise demand evolution, buyers’ and suppliers’ landscape and key future trends. Cross- case analysis. -3- 2.
Domestic BOP Market Overview A glance at Indian’s overall BOP industry growth helps put the dynamics of the domestic BOP market in perspective. BOP services, accounting for over 20% of the Indian IT Industry (including hardware), is the fastest growing segment across software and services, driven by scale as well as scope. The Indian BOP industry, currently sustaining an employee pool of over 700,000, can be broadly classified into Exports and Domestic. Exports – The exports segment grew from SUDS. Billion in fiscal 2004 to SUDS 1 billion in 2008 and currently accounts for 37% of the global business process offspring pie. As per estimates in a “business as usual” mode, Indian’s BOP exports will grow to SUDSY-30 billion over the next four to five years. With proactive measures, it has the potential to reach SUDSY billion by 2012, with a maximum addressable opportunity of USDA-280 billion. Domestic – The domestic BOP market, with a growth rate of 50% over the last five years, grew faster than the exports market to reach nearly SUDS . Billion in PAYOFF. At a conservative CARR of 38%, the domestic BOP market is slated to reach SUDS billion by 2012. It presents a huge untapped growth opportunity with addressable market opportunity is in the range of SUDSY-19 billion by 2012. -4- Factors leading to domestic BOP growth There are three primary reasons why the domestic BOP market is expected to emerge as a sizeable segment over the next few years. 0 First, its exponential growth across multiple industries will require companies to focus more intensely on their specific core capability areas.
The telecoms and BIFFS industries are the early exhibitors of this trend. 0 Second, as competition intensifies due to rising domestic competition and lowering of international trade barriers, the domestic industry is expected to face increasing cost pressures and a need to match global cost structures/best practices 0 Third, increased capability in the supplier community is also encouraging Indian companies to move towards outsourcing. Having grown via the export market, many large suppliers have developed end-to-end capabilities that are large enough to attract domestic players looking at high-volume growth. Additional factors include the reduced cost of connectivity, the rapidly growing Indian economy, rising customer expectations, the global aspirations of Indian companies and global firms entering the Indian market. The changing rupee-dollar equation and the slowdown in the US economy, which is forcing players to look at other markets, have added to the Current Drivers of Outsourcing Unlike in the case of the exports business, cost benefit alone does not drive the domestic BOP market.
While government organizations such as BIBS and the Railways are primarily driven by cost benefits, private giants such as Birth and Avoidance are primarily driven by value generation and quality. At the generic level, the key drivers of outsourcing, in order of prominence, include: 0 Cost benefit: Cost benefit arising from economies of scale is an important driver of domestic outsourcing. Third-party vendors bear the cost of infrastructure, human resources, training, etc, thereby enabling buyer companies to scale up easily. Value generation through third-party vendors: The competitive landscape of Indian industries is straining companies’ operational models. Hence, companies in various industries are turning to vendors who can help them overcome some of the challenges associated with fast growth, e. G. , managing huge volumes and setting in motion a large network that can reach out to different corners of the country rapidly. As competition intensifies, companies look to third-party providers with significant past experience across customers to bring in best practices. Manpower management issues arising from rapid growth in volume and size of operations: This is cited as another key reason for domestic outsourcing. To overcome challenges of manpower expansion and management, companies are outsourcing their encore activities to suitable vendors -5_ Inhibitors of Domestic BOP growth in India 0 Lack of Experience with Outsourcing: – Inexperience of potential client organizations with organized/large scale outsourcing may constrain the growth of the mommies market.
This may be manifested in several ways, such as mistrust regarding sharing of data, inability to identify appropriate processes and/or vendors in the selection process, drafting of inadequate Slaps, etc. Any or all of these factors may lead to some bad experiences of client organizations acting as a deterrent to other client organizations attempting such a move. Relatively lower cost arbitrage in the domestic business compared to offshore outsourcing: – The absence of a comparable labor cost advantage in the domestic business (as compared to that enjoyed by US/
I-J customers) makes selling these services a little more difficult. Absence of third- party service providers with significant scale:- Unlike the experimented vendor landscape where there are several third-party players with a scale of operation of over 5,000-6,000 employees, the largest vendors serving the domestic market still landscape will be required to develop equally rapidly to keep pace with the forecast demand.
Slow build-up of scale in contracts in the domestic market: – Given that the cost advantage in the domestic business is relatively lower, this segment is more prone to margin pressures. As a result, the ability to rapidly achieve scale opportunities is essential for service providers to make this a viable business opportunity. Although a few recent deals and announcements indicate sizeable scale of business, a slowdown in large-scale deals could inhibit growth in the domestic market.
Government procurement policies: – There is a concern that restrictive procurement policies adopted by some government departments, such as insisting on high levels of earnest money deposits (leading to additional capital costs), may deter some service providers from bidding for their contracts (this has been observed in the IT services space as well). Other obstacles that could slow growth in the domestic market:- Lack of interoperability norms that restrict service providers from offering a national toll free access number, lack of adequate funding avenues for domestic market players. 6- 3. Demand Analysis of Domestic BOP Vertical Sector-wise Analysis of Domestic BOP It is estimated that the domestic BOP opportunity is spread across a number of key market segments. Important opportunity areas include banking, insurance, telecommunications and government verticals. Emerging Sectors As per estimates, the telecommunications industry followed by the banking services industry are the early adopters in the domestic BOP segment. It is also expected that BOP adoption patterns will differ across industries.
For example, the telecoms industry the other hand, the BIFFS industry may show slower initial adoption levels, which are likely to accelerate in the future. Vertical Sector-wise Growth Analysis of Domestic BOP Short Term 2-3 years Telecoms Mid Term 3 – 7 years Retail Banking Insurance Travel & Hospitality Healthcare Government Media / Consumer Goods APS Project – Effective Strategies in Domestic BOP Market Other emerging vertical markets with significant potential for already established service lines such as Customer Care and Sales and Marketing include aviation, hospitality, retail and media.
Moreover, learning from other sectors, the manufacturing sector, which covers areas such as consumer durables, packaged consumer goods and automobiles, has started signing discrete outsourcing contracts. Customer-contact activities for support, loyalty initiatives and promotional campaigns are the key activities being outsourced in this segment. Service-line Demand: Value Chain Analysis The domestic BOP market is currently driven by the need to offer quality services in areas such as Customer Care and Sales and Marketing.
While Customer Care and Sales and Marketing have been evolving from basic voice-based (outbound call center) services to high-end quality voice-based (inbound customer service centers) services, the market has strong potential to grow into non-voice services, as well as back office and expert services segments. Domestic market has been evolving from a Tier I and II player-dominated market into a more consolidated Tier I players’ market.
Customers who earlier banked on Tier II and Ill players for basic out-bound voice-based services such as telemarketing and sales are now seeking high-end in- bound voice-based services such as customer service (including upsetting and cross- selling) from more experienced Tier I players. The domestic BOP market is evolving along a similar path as the past evolution of the BOP export market. The BOP export industry has matured over the years while moving up the value chain. The domestic BOP market offers a similar opportunity to progress up the value chain.
An existing Current Service Offerings Basic Services Basic Customer Support 0 Sales and Marketing Future Scope of Services Technical Support 0 Technical Customer Support 0 Back office Processing High-end Support 0 High-end Customer Support 0 Sales and Marketing 0 Select Processing Services Expert Services 0 Decision Making 0 Problem Solving -8- Horizontal Service Line-wise Analysis of Domestic BOP Customer Care and Sales and Marketing are the two largest service-line segments and accounted for over 70% of the overall market in 2008.
While Customer Care and Sales and Marketing are expected to grow steadily in the future, there are indications hat HER and F will also show positive growth in the next two to three years. Horizontal Sector-wise Growth Analysis of Domestic BOP Current Customer Interaction Management Future Finance & Accounting Sales & Marketing Back office Processes Technical Support Human Resources Knowledge Services Procurement While key service areas include query handling, sales and marketing support and knowledge services, which are expected to exhibit significant activity and growth.
As the industry evolves, other processes will be increasingly outsourced. In India, there are limited discrete outsourcing contracts in specific areas. However, these are still quite small. Specific examples of activities, in this category include participant/ audience contacts for television game shows, e. G. , Kahn Bang Corporate, Indian Idol, etc. , which are outsourced by the respective channels to specialist service providers such as Dialect, which manage services such as Interactive Voice Response (IVR) systems for their customers.
Order management: While this PL (third-party logistics) service is still at the developmental stage in India, there are specific instances where logistics vendors are taking up total end-to-end logistics deals. TCL formed a JP with Mitosis of Japan in 1999 to set up Translates Logistics International (TTL), a unique dedicated automobile logistics service provider to Toyota Karakas Motors Ltd. (TAKE) at Bangor, a pioneer in automotive logistics. The JP handles the entire in-bound and out-bound logistics of Toyota vehicles in India.
Opportunities await BOP firms to provide specialized services to newly emerging industries such as retail, fashion apparel or automobile components, e. G. , customer relationship management (CRM), market research, accounting, and inventory and supply chain management. An early adopter, Dabber, one of the largest fast-moving consumer goods (FMC) companies in India, signed a 10-year agreement with Accentuate, outsourcing the IT work of its supply chain and secondary sales functions to Accentuate. 4.
Evolving Buyer’s Side – Growing Awareness Domestic buyers go through a learning curve on outsourcing. During phase 1, they become aware of outsourcing through marketing hype. They quickly learn about potential benefits, costs and risks by talking to current outsourcers, consultants and service providers. Initially, they outsource pilot projects (basic and non-core in tauter) to reduce costs on a few selected activities (phase 2). As they move up the learning curve, they move to phase 3, when they exploit outsourcing for quality as well as for cost reasons.
In phase 4, mature adopters utilize outsourcing to enable corporate strategies such as increasing business agility, bringing products to market faster and at a lower cost, financing new product development, accessing new markets or creating new business. While it takes some organizations years to move up the learning curve, the pace slows down at the end of phase 1 and throughout hash 2, when many companies are focused on cost benefits and at the same time are fearful about outsourcing.
Currently, the majority of domestic Indian clients are in phase 1 and phase 2 of the process. However, the domestic market has significant Phase 4 Phase 3 Size of Market 0 Institutionalized 0 Focus on Value-added Transformation Phase 2 Phase 1 0 Hype and Fear 0 Early Adopters 0 Market Matures 0 Best and Worst Practices Emerge 0 Focus on Cost 0 Richer Practices Emerge 0 Focus on Quality Time Vendor Selection Criteria: Domestic Buyers Perspective
The Domestic Buyers are of the view that the key criteria for vendor selection are as follows: 0 Existing client credentials for providing voice and non-voice BOP services Financial and managerial capability of service provider to sustain and grow in line with increasing demand 0 Cost and quality efficiency 0 Existing relationship with service provider -10- Existing Relationship Capability to Scale up Core Efficiency Vendor Selection Criteria Prior Experience Managerial Capability Proven Credentials This is resulting in some buyers terminating contracts with smaller players and installation their operations with larger ones.
To be successful among a sea of suppliers, service providers need to demonstrate their financial and managerial capability. Existing BOP relationships with service providers will not be a key influencer in future BOP vendor selection decisions. The bulk of the activity will go to a provider with proven capability and credentials in the voice and non-voice BOP services domain. While contemplating outsourcing for the first time, companies base their selection on past credentials and reliability information gathered from the racket.
Although prior experience in a related field is desired, vertical-specific experience is not a necessity for all buyers. Challenges faced by Buyers The challenges faced by buyers while outsourcing include the following: 0 Long stabilization time: Currently, outsourced activities/processes take roughly six to eight months to be successful y integrated, stabilized and functioning efficiently. This long period poses a challenge for buyers. Lack of industry experience: While the domestic supply side is capable of successful y managing activity-based operations, it as not as yet gained recognition for end-to-end process outsourcing in an industry- specific environment. Certain buyers find it challenging to collaborate with suppliers who lack such experience. 0 In-house restructuring: Buyer companies face significant challenges internally. Currently, employees are averse to outsourcing and incorporating new processes and structures.
This -11- APS Project – Effective Strategies in Domestic BOP Market can be a hurdle for government agencies as they general y have unions and may face resistance from employees. Lack of control: In the case of third-party outsourcing, buyers perceive a sack of control over the outsourced entity from a day-to-day operations standpoint. This makes it even more challenging to incorporate change and achieve high levels of quality.
Road ahead for Domestic Buyers While buyers look to continue outsourcing large volumes of non-core processes, core processes are likely to remain in-house for another two to three years. This is due to lack of confidence in domestic suppliers. Further, the level of automation within buyer companies will directly impact outsourcing. Higher levels of automation will facilitate outsourcing in the future. Outsourcing engagements are currently activity-
