introduction to ites industry -...
TRANSCRIPT
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CHAPTER – I
INTRODUCTION TO ITES INDUSTRY
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CHAPTER I – INTRODUCTION TO ITES INDUSTRY
1.1 INFORMATION TECHNOLOGY IN INDIA
Information technology in India is an industry consisting of two major components:
IT Services and IT enabled services (ITES) ,more commonly known as Business
Process Outsourcing
Outsourcing as phenomena is not new, if one looks at the outsourcing history, one
realizes that outsourcing, especially BPO has been the means for developing
countries to exploit their competitive advantage in information and technology
communication. Over the last few years the worldwide business process outsourcing
(ITES-BPO) industry has also undergone rapid transformation. Continuing emphasis
on cost cutting in a competitive world is driving companies to look at offshore
outsourcing as a strategic alternative.
IT/ITES sector has emerged as a major contributor to Indian economy. Contribution
to forex reserves, generating employment opportunities, growing prosperity of
burgeoning middleclass, and rise in consumerism – IT/ITES sector is driving the
growth engine in more than one-way.BPO).
The sector has increased its contribution to India's GDP from 1.2% in FY1998 to
7.5% in FY2012 (NASSCOM, 2012) and is expected to contribute to ~ 10 %of
annual GDP by 2020. According to NASSCOM, the sector aggregated revenues of
US$100 billion in FY2012, where export and domestic revenue stood at US$69.1
billion and US$31.7 billion respectively, growing by over 9%.
The IT & ITES industry in India has today become a growth engine for the
economy, contributing substantially to increases in the GDP, urban employment and
exports, to achieve the vision of a powerful and resilient India.
Indian firms, across all other sectors, largely depend on the IT &ITES service
providers to make their business processes efficient and streamlined. Indian
manufacturing sector has the highest IT spending followed by automotive, chemicals
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and consumer products industries. NASSCOM expects the IT services sector in
India to grow by 13-14 per cent in 2013-14 and to touch US$ 225 billion by 2020.
The Tier 1 locations generate 92.4% of the industry revenues. The direct
employment in Tier 1 locations is 1.9million and indirect employment is 7.3million
The Tier 2 and 3 locations account for 7 % of industry revenues .49 delivery centres
opened in Tier 2 and 3 locations as against 25 in Tier 1 over the last one year (2011
to 2012) .The direct employment in Tier 2and 3 locations has risen to 1.7 lakh.
Table 1.1 Top Indian IT Service Providers
Firm Revenues
(in billions) Employees
Fiscal
Year
Head
quarters
Tata Consultancy
Services
$11.57 billion 254,076 2012 Mumbai
Cognizant
Technology
Solutions
$7.05 billion 185,045 2012 Teaneck,
New Jersey
Infosys $6.69 billion 153,761 2012 Bangalore
Wipro $5.73 billion 140,569 2012 Bangalore
HCL Technologies $4.3 billion 85,335 2012 Noida
(Source: Wikipedia, 2013)
The major cities that account for about nearly 90% of the sector's exports are
Bangalore, Chennai, Hyderabad, Delhi, Mumbai and Kolkata. Bangalore is
considered to be the Silicon Valley of India because it is the leading IT exporter
(Rai, 2006). Exports dominate the industry and constitute about 77% of the total
industry revenue. However, the domestic market is also significant with a robust
revenue growth. The industry‘s share of total Indian exports (merchandise plus
services) increased from less than 4% in FY1998 to about 25% in FY2012.
According to Gartner, the "Top Five Indian IT Services Providers" are Tata
Consultancy Services, Infosys, Cognizant, Wipro and HCL Technologies (Gartner,
2012).
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Market Size
India‘s total IT industry‘s (including hardware) share in the global market stands at 7
per cent; in the IT segment the share is 4 per cent while in the ITES space the share
is 2 per cent. The industry is dominated by large integrated players consisting of
both Indian and international service providers. During the year, the share of Indian
providers went up to 65 per cent-70 per cent due to the emerging trend of
monetization of captives.
India's IT and BPO sector exports are expected to grow by 12-14 per cent in FY14 to
touch US$ 84 billion - US$ 87 billion, according to NASSCOM. IT spending in
India is projected to reach US$ 71.5 billion in 2013, an increase of 7.7 per cent as
compared to US$ 66.4 billion projected for 2012, as per a report by Gartner. The
enterprise software market in India is expected to reach US$ 3.92 billion in 2013,
registering a growth of 13.9 per cent over 2012 revenue of US$ 3.45 billion,
according to Gartner (2012).
Investments
Indian IT's core competencies and strengths have placed it on the international
canvas, attracting investments from major countries. Between April 2000 and June
2013, the computer software and hardware sector attracted cumulative foreign direct
investment (FDI) of Rs 53,757.60 crore (US$ 7.97 billion), according to data
released by the Department of Industrial Policy and Promotion (DIPP).
More recently, online retailing, cloud computing and e-commerce are the major
driving forces behind the rapidly increasing growth in the IT industry. Online
shopping has increased with the emergence of internet retailing and e-commerce.
Some of the major investments in Indian IT and ITES sector:
Baring Private Equity Partners Asia plans to buy IT services firm Hexaware
Technologies in a deal estimated at about US$ 400 million
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Cognizant has been selected by the Saudi Electricity Company (SEC) to
develop a comprehensive billing and revenue management solution based on
SAP utilities enterprise software to meet the functional, technical, and
operational requirements of SEC's rapid growth
Prisma Global has acquired majority stake in German technology for about
Rs. 27 crore (US$ 4.00 million). The company will now own the Intellectual
Property (IP) of technologies developed by the German firm
Wipro Ltd has secured a large IT outsourcing contract worth US$ 500 million
from the US-based financial services company Citigroup. Wipro will be
responsible for application development and maintenance, as well as
providing infrastructure management services, for Citi's global operations
Tech Mahindra has signed a five-year agreement with UBS Fund Services
(Luxembourg) (UBS FSL) for its new platform, Tech Mahindra Managed
Data Services (MDS), designed to support asset managers, wealth managers,
investment banks, custodians and administrators. The company‘s Brazilian
subsidiary Complex IT has also signed two deals to deliver enterprise
solutions for oil and gas, and banking sector
1.2 INTRODUCTION TO ITES – BPO INDUSTRY
ITES – BPO – Definition
The term IT enabled Services (ITES) and Business Process Outsourcing (BPO) are
often used inter-changeably. However, strictly speaking, ITES primarily involves
outsourcing of business processes (domestic or offshore) that can only be packaged
with IT. These services are delivered through a platform of telecommunication or
data network or other electronic media. ITES is therefore a subset of BPO.
Although, usually BPO is associated with lower end call center work, there has been
an evolution over the past few years in the outsourcing business to include higher
end knowledge process outsourcing (KPO). This study for convenience uses ITES as
a broad term to include ITES, BPO outsourcing and off shoring.
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Classification of ITES - BPO Services
ITES-BPO can be classified in terms of the geographical reach. Offshore
outsourcing is when the specialist services are contracted outside the company‗s
own country. Nearshore outsourcing is when the services are contracted in the
neighboring country and Onshore outsourcing is when the services are contracted
within the borders of the company‗s own country.
As a further step to Offshore outsourcing , Clients and service providers are
vigorously exploring moving work from Tier 1, 2 3 cities to Tier 4,5,6 towns .
There are predominantly rural areas. The basic advantages of Rural BPOs are lower
overheads in terms of infrastructure ,reduced attrition and lower cost of operations.
This movement is called rural outsourcing. Rural Outsourcing is the concept of
utilizing the talent of professional people who choose to live in rural areas. By using
rural outsourcing, company‗s costs are reduced as people work for lesser wages,
because the cost of living for them is lesser than the people who live in urban areas,
or big cities. This is a great alternative to offshoring as the projects remain in one‗s
own place and still overall spending is reduced.
As of 2012 as per NASSCOM estimates, the BPO industry has directly employed
more than 6000 in about 70-90 rural BPO centers. The sector is infusing approx.
Rs.25 million per month into rural communities. Rural outsourcing has empowered
women .66 % of the workforce are women.
Customer Care Support Centers, which are an integral part of the ITES-BPO
industry, has emerged as the India‗s new sunshine sector. These firms also handle a
host of activities including responding to credit card enquiries, preparation of
invoices, payrolls, cheques, reconciliation of daily accounts, medical transcriptions,
processing applications, billing, and collections ,including queries and complaints
across various service verticals viz., Telecom , Banking and Insurance , Travel ,
Health care and host of other utility services.
The ITES-BPO definition includes both voice – in-bound and out-bound – and non-
voice services, which can include data entry and analysis, payroll generation, benefit
administration and accounting functions.
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Table 1.2 BPO Strategies: Choice of Vertical & Horizontals
(Source: India BPO Forum)
Rationale of ITES – BPO
ITES-BPO covers diverse areas like finance, HR, telecommunication, healthcare,
administration, manufacturing utility services etc. Equipped with technology and
manpower, these services are provided from e-enabled locations. There is a
substantial enhancement in service standards and radical reduction in costs. The
ITES-BPO processes migrated to India brings about a saving of around 40-60% of
the cost (NASSCOM, 2002, 2004, 2006). Cost saving may vary from industry to
industry and country to country, but most expert estimates ranges between 30-60% .
The key source of India‗s advantage lies in the labor cost differential (NASSCOM,
2003) and the advancements in software technology along with the availability of a
large pool of well-trained professionals who can speak fluent English (Chengappa &
Goyal, 2002; and Ramchandran & Voleti, 2004). The developments in the
Insurance Telecom Banking & Finance Professional Services Utility Services
Premium Processing Billing Management Invoice Proceesing / Credit
Receivable / Payables
Management ,
Reconciliations Revenue Accounting
Business
AdministrationClaims Policy Management
, Transcription Services New Order Management Trade Finance
Data Entry / Data Base
Management
Data Entry / Data Base
Management
Marketing
Program
Management
Programmes to increase
share of w allet
Upsell / Crosssell
Programmes CRM / Data Analytics
Surveys / Data synthesis.
Industry analysis
Upsell / Cross Sell . CRM
and Loyalty Management
Pension Accounting Expense claims Payroll
Benefits Hotline, Expense
claims
Employee Data Base
Management
Customer Services
A/c Enquiry and
investigation
A/c Enquiry and
investigation Reports and Presentations
Voice / Email / customer
services Customer
Data Base Management
Research and
Knowledge
Services Analysis and Reportings Analysis and Reportings Research & Presentations
Business Research
Reports , Industry Analysis Analysis and Reportings
Customer
Interaction
ManagementCUSTOMER SATISFACTION SURVEYS
BPO STRATEGY
CHOICE OF VERTICALS & HORIZONTALS
BACK OFFICE ACCOUNTING
Finance &
Accounting
HR & Benefits
AdministrationPAYROLL PROCESSING
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supporting infrastructure like telecom and internet has facilitated the process and
contributed to the growth. The promise of cost savings will always remain
fundamental. However, two important factors namely; adverse currency movements
and wage inflation in India have contributed to reducing the operating margins of
vendors. The Indian currency has significantly appreciated compared to the US
dollar since 2002 — a trend that is likely to continue in the near future. The
inflationary pressures on operating cost are also unlikely to relent; therefore it‗s
prudent to conservatively estimate the effective savings to be in the range of 25-40
% (NASSCOM-McKinsey, 2005).
Although corporations continued to purchase non IT- enabled BPO services, in the
last decade, the IT-enabled services in general and the ITES-BPO services
offshoring in particular, have witnessed the highest growth and attracted the most
attention. IT enabled Services is thus a revolutionary IT offshoot which can look
after a diverse range of outsourcing needs IT-enabled service has made it possible to
carry out services and business process at a different geographical location other
than where the actual market or demand for such services exists. Due to the rapid
progress in the field of internet and telecommunications infrastructure as well as data
processing, these services can now be offered to clients from an offshore facility as
well.
The ITES – BPO as a Value Adding Proposition
The organization‗s belief in value proposition provided by ITES-BPO is
demonstrated by the increasing number of global contracts and alliances focusing on
outsourced service delivery. ITES-BPO suppliers over and above reducing costs,
provide expertise, assist in enhancing clients‘ services, and increase the profits. The
parties involved in a BPO relationship i.e. the client and vendor organizations need
to comprehend mutual goals, capabilities and values before entering into an
outsourcing partnership in order to take advantage of the arrangement (Feeny et al.,
2005).
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The relational view of outsourcing (Dyer and Singh, 1998) emphasize that to achieve
a win-win situation, there is a need to have shared goals and mutual understanding of
processes and decisions between the client and vendor organizations. The key
element of the partnership is in the client understanding the vendor‗s end of the BPO
market. For example, issues such as HR, technology, and training may directly affect
clients‘ operations. The client is in a better position to negotiate contracts, make
strategic decision about ownership, handle competition and build long term
relationship with vendors if he comprehends the offshore BPO markets. For
example, when global companies setup their own captive BPO centers‘ at offshore
locations, the understanding of the dynamics of the BPO industry in such locations
may be immensely valuable.
Impact of Economy and Society
The Indian IT / ITES industry has been one of the great success stories of modern
India. An industry that did not exist two decades ago is now the toast of the nation
and the envy of the world. It is arguably the most global of any Indian industry and
has created international benchmarks for quality, proving to the world and to
ourselves that Indian companies can compete globally and win on quality. It has also
demonstrated what can be achieved by unleashing the power of middle class, first
generation entrepreneurship in India. The overwhelming majority of companies in
this sector were started by entrepreneurs with modest backgrounds and very limited
access to capital. In many ways, this industry has helped create the brand of ―New
India‖ and served as an inspiration for everyone else.
The IT / ITES industry has significantly contributed through socially relevant
products/services and community initiatives in human resource development,
education, employability, health, encouraging women empowerment.
Diversity in Employment
Besides being the largest employer in the organized private sector, the IT/ITES
industry also consciously follows a diverse employment practice and encourages
diversity in the work place in terms of qualification, abilities, gender, skill sets etc.,
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(i) Creating employment opportunities in smaller towns/cities:
By recruiting talent from non-urban towns and rural background, the
industry has reached out to the educated resource pool in these places and
created employment opportunities, which hitherto was largely limited.
Large IT/ITES companies often have 33% to 50% of their employees
coming from non-metro/rural areas
(ii) Opening opportunities for non-technical personnel:
The growing employment opportunities in this sector (both direct and
indirect) are not restricted to the better educated or technically educated
people alone. While 75% of the employment generated through the
indirect route are filled in by candidates who are under graduates/diploma
holders or less educated, companies also help under qualified candidates
to reach a desired skill level by investing in their training and skill up-
gradation.
1.3 CONCEPT AND EVOLUTION OF OUTSOURCING
In the 1970‘ s, the outsourcing of the Information Technology (IT) function started
to happen on a wider scale due to the high cost of processing. In the late 1980‘s, the
information system trade press first coined the term ―outsourcing‖ to describe the
growing dependence by firms on outside providers for on-going IT support. Today,
the term is more widely defined as contracting for any of company‗s recurring
internal functions with outside vendors. The crux is that the vendor rents his skills,
knowledge, technology, service and manpower for an agreed price and period to
perform functions that the client no longer finds it beneficial to perform it himself.
The term outsourcing is used when firms contract manufacturing or services to third
party vendors, either with in the country borders or offshore, who offers specified
service for a particular period of time at an agreed price.
Outsourcing has existed for many decades in manufacturing sector, though
outsourcing in services is a recent phenomenon. Services outsourcing occurs when
organizations contract out services to a third party vendor either domestically or
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offshore. This is also widely known as Business Process Outsourcing (BPO), which
in essence means the delegation of ownership, administration and operation of a
business process or processes to an external service provider. The external service
provider in turn manages and administers the process or processes in adherence to
some measurable performance metrics. These services can be delivered domestically
or from abroad. Outsourcing benefits from the key advantage of specialization. If a
service or component can be more effectively provided by specialist than it can be
handled in-house, then both the entities can focus on what they do best and
continuously enhance performance.
Perspective on Outsourcing
Outsourcing has long been viewed as a make versus buy decision. Traditionally, this
was the relative benefit derived in economic terms on a decision of making a
particular component or service, against buying it. Management theorists believed
that the competitive advantage can be maintained by identifying core and non-core
functions and transferring the non-core functions to a specialist. These discussions
evolved across time and gave birth to the concept of virtual organization, which
essentially meant that the organizations should transfer non-core functions to a
specialist and focus on its core functions. The management literature has often
argued that non-core functions of a firm should be outsourced (e.g., Venkatesan
(1992), Quinn and Hilmer (1994). An organization, it is argued, should primarily
concentrate on its core-competence areas, from which it benefits in terms of cost or a
monopolistic advantage, and outsource the manufacture of other products. The
words of Tom Peters, as quoted by Salvetti and Shell (1995) goes as "do what you
do best, outsource the rest". Porter‘s value chain concept, drawing on industrial-
organization economics, encouraged decision makers to shift their focus from the
cost of component to the profit opportunity associated with the underlying activity
and decide whether the user should be in the business of producing the part/service.
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1.4 CONTEXTUAL FRAMEWORK OF THE INDIAN ITES – BPO
INDUSTRY
The changes in the Indian economy had a critical role to play in the development and
prospering of IT sector and eventual percolation to BPO industry. The mixed
economy approach followed by India up to 1991 did not provide the right
environment to nurture entrepreneurship and competitiveness. The Indian economy
based on a centralized approach hit the bottom in the year 1991. During that time
India experienced a double-digit rate of inflation, decelerated industrial production, a
very high ratio of borrowing to the GNP, and a dismally low level of foreign
exchange reserves. The foreign reserves were barely sufficient to cover the cost of
three weeks‘ imports. The foreign exchange requirements of the Indian government
were met by pledging gold to the Bank of England. The multilateral bodies like
World Bank and the International Monetary Fund (IMF) agreed to bail out India on
the condition that it changed from a regulated regime to a free market economy. This
dawned the new era of liberalization, where the government announced a series of
changes in the economic policies starting with the devaluation of the rupee, followed
by new industrial, fiscal, and trade policies. Control over the banking sector and
foreign investments were eased and public sector underwent major reforms. After
these reforms, the economy has become dynamic and vibrant, and foreign reserves
have gone up significantly (Budhwar et al, 2006). The outsourcing industry had
come to be viewed as the primary engine of the country‗s development over the next
few decades, contributing broadly to GDP growth, employment growth, and poverty
alleviation.
These reforms provided the trajectory for India to launch itself as a superpower in
the ITES-BPO industry in the early twenty-first century. The already established IT
sector and availability of large number of technically literate English speaking
people provided the right ingredients for this growth ( Budhwar et. al, 2006). The
large IT companies assisted the ITES-BPO industry in expanding its base. The IT
giants were able to offer a wide spectrum of services primarily leveraging on the
broad skill sets and global clientele. There has been a remarkable improvement in
the type of services being offered by Indian companies from the simple beginnings.
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Presently, Indian companies are offering a range of services including customer care,
medical transcription, medical billing services and database marketing, to Web/sales
marketing, accounting, tax processing, transaction document management,
telesales/telemarketing, HR hiring and biotech research.
According to NASSCOM Strategic Review 2011, ITES-BPO is now the fastest
growing industry in India. Today, India is considered as the electronic housekeeper
of the world since most of the outsourcing services from India are typically provided
by ITES-BPO. The Indian ITES-BPO industry has matured and grown across time
(Babu, 2004).In just over two decades, the industry has grown to reach nearly US$
59 billion in export revenues, employs around two million employees, and accounts
for approximately 55 percent of the worldwide BPO market (NASSCOM-2011,
Strategic Review). There are around 784 Indian ITES-BPO companies registered
with NASSCOM. The main activities or areas covered by the Indian ITES-BPO
organizations include customer care, such as remote maintenance, help desk, and
sales support; finance and administration, data analysis, medical transcription,
insurance claim processing, and inventory management; HR and payment services
including payroll, credit-card services, cheque processing, and employee leasing. In
addition, the BPO industry has expanded into engineering and design, animation,
market research, network consultancy and management, remote education, and
content development (i.e., digital content, LAN networks, and application
maintenance). BPO activities, where knowledge processing is required are on the
increase. Some examples of KPO include intellectual property research, legal and
medical research, R&D, analytical services like equity research, information security
services such as risk assessment and management, bioinformatics (for example,
genome sequencing, protein modeling, and toxicology studies) procurement and
global trade (Ramachandran and Voleti, 2004; Ravichandran, 2005; Christopher,
2005).
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1.5 CONTRIBUTION OF ITES – BPO TO THE ECONOMIC GROWTH
IN INDIA
According to a NASSCOM study reviewing the impact of IT-BPO industry over a
decade brought to light the multifold contribution made by the industry on the
various social and economic parameters in India. The Indian ITES-BPO industry has
contributed significantly to Indian economic growth in terms of GDP, foreign
exchange earnings and employment generation (NASSCOM Impact Study, 2010).
The intangible impact, which is equally significant, is the ripple effect created in the
national and international economic space. The industry set the stage to unleash the
hitherto untapped entrepreneurial potential of the middle class Indian and took
Indian excellence to the global market.
In the last two decades, the Indian IT/ITES industry has contributed significantly to
Indian economic growth in terms of GDP, foreign exchange earnings and
employment generation. However, equally significant though not as tangible, has
been the ripple effect it has created on the general economic environment in the
national and international economic space. The industry has been the trigger for
many ―firsts‖ and has contributed not only to unleashing the hitherto untapped
entrepreneurial potential of the middle class Indian but also taking Indian excellence
to the global market.
Direct Contribution to the Indian Economy
The emerging role of ITES-BPO industry in the Indian economy is well established.
ITES-BPO is considered as the fastest growing segment among the services sector,
which in turn fuels the key economic indicators of the country. Some of the
indicators where there is a direct contribution are:
(i) Growing Share of the Country’s GDP:
The sectors contribution to the Indian GDP has continuously increased. It
grew from 1.2% in FY98 to an estimated 7.5 % in FY2012. And is
expected to account for ~ 10% of Indias GDP by 2020. This sector is
expected to chip in with about 14% of the total services sector revenue .
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The BPO industry contribute to 13 % of India‘s total exports and is
expected to account for 18-20 % of total India exports in 2020. The
industry contributed almost INR 15,000 crores in direct taxes
(NASSCOM, Strategic Review, 2011). Additionally, the cascading effect
of the sector‗s operating and capital expenditure was estimated to be
around USD 30 billion, while consumer spending effect from its
employees amounted to INR 76,000 crores in FY2010.
(ii) Growing Exports Boost the Foreign Exchange Reserves:
Exports comprise two third of Indian IT software and services revenue,
with the ITES-BPO share nearly 24 percent. It is one of the most
important channels for bringing foreign currency into the country and
accounted for almost 14 percent of the total Indian exports in FY2010. Its
contribution to Indian exports (merchandise plus services) grew from less
than 4 percent in FY1998 to almost 26 percent in FY2011.
(iii) Generating Employment Opportunities:
Direct employment in the industry is expected to reach nearly 2.8 million
in FY 2012 and indirect job creation is estimated to be at 8.3 million. The
direct jobs provided by the industry have been growing at a CAGR of 26
percent making it the largest employer in the organized private sector of
the country. (NASSCOM, Strategic Review, 2012). The industry has
played an important role in empowering a wide spectrum of human assets.
– Out of the total employed in the industry 76 percent are less than 30
years of age, 4 percent come from economically backward section, over
45 percent of total employee constitute women, 60 percent of companies
offer employment to differently - abled people and 58 percent of total
employed are originally from Tier-2/3 cities (NASSCOM Strategic
Review 2010).
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Indirect Contribution to the Indian Economy
The growth of the IT/ITES sector and its resultant contribution to the economic
growth and development has also resulted in certain wider impacts, which in many
cases have had a rub-off effect and set benchmarks for other sectors of the economy
while boosting the image of India in the global market.
(i) Enhancing The Image Of India In Global Market:
The ITES-BPO industry has played a key role in transforming the image
of India from a slow moving bureaucratic economy to a land of world
class technology, business service providers and innovative entrepreneurs.
Widely traveled Indians have watched with pride as different countries
and people look at India and Indians with hitherto unknown respect and
admiration. The India IT/ITES industry has contributed to what brand
‗India‘ stands for in today‘s global market. Listing of Indian IT/ITES
companies in global stock exchanges, which requires adherence to
stringent global accounting norms, has helped to build a strong brand of
the companies and the sector outside India. Made in India software
products have found widespread use across the world while several Indian
IT/ITES firms have been partnering with high profile global brands and
events
(ii) Education:
There has been an increased spending on educational infrastructure to
meet the ever growing demand, by the government and private players.
ITES-BPO majors are also undertaking training initiatives to improve
student quality.
(iii) Enabling Wealth Creation and Asset Building:
The industry has played an important role not only in wealth creation for
individuals but has also helped in supporting and sustaining extended
households. The NASSCOM survey shows that 77 percent of employees
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support their extended families, while 56 percent are the primary bread
earners of their households. It has also contributed to asset building with
almost 62 percent of the employees owning an automobile, 84 percent
spend a portion towards housing (7 percent invest in real estate) and 42
percent employees are able to save more than 10 percent of their salary.
(iv) Infrastructure and Other Amenities:
IT parks and townships are being built, keeping in line with the
expansion/entry plans of major ITES-BPO companies. The associated
infrastructure roads, housing, retail and entertainment facilities are being
improved or built.
(v) Fuelling Growth of PE/VC Fund:
The information technology sector kick started the Venture Capital (VC)
activity in India and many India-centric funds have been created. Various
other sectors, such as healthcare, manufacturing and financial services
have also benefited as they are able to access this funding source. The
ITES-BPO continues to be the favorite sector and has accounts for ~7 %
of India‘s total FDI in the last 12 years flowing into India. VC/PE firms
have made invested over 12 billion in India in 700 plus deals over the last
12 years (NASSCOM, Strategic Review, 2012).
(vi) Spurring First Generation Entrepreneurship:
Corporate India consisted of either large family owned businesses or
multinational companies till the advent of the IT/ITES industry, and it
was rare to see a first generation entrepreneur. The shift of focus from
physical capital to intellectual capital and the advent of the PE/VC
funding enabled a large number of first generation entrepreneurs with no
wealth to try their hand at starting new enterprises. The demonstrated
success of these entrepreneurs created an aspiration among the middle
class and spurred them to exploit their potential with confidence.
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First generation entrepreneur was a rarity in Corporate India as most of
the business was controlled by large families or multinationals. There was
paradigm shift in this after the advent and growth of ITES- BPO industry.
The shift of focus from physical capital to intellectual capital and the
advent of the PE/VC funding enabled a large number of first generation
entrepreneurs with no capital to try their hand at starting new enterprises.
The demonstrated success of these entrepreneurs gave confidence to the
middle class and spurred them to exploit their potential with confidence.
There were a lot of first-generation entrepreneurs who became billionaires
in the process and the wealth created was distributed to stakeholders
through stock option schemes. The practice of Employee Stock Option
Plan (ESOP), started by the ITES-BPO industry became popular in other
industries as well. This process led to distribution of wealth among
employees and created lot of salaried millionaires.
(vii) Improving the Product/Service Quality Level:
As the ITES-BPO companies were catering to and competing with global
players required them to adopt quality standards. This high quality of
services and products has been the drivers and sustainers of growth in the
industry and has helped in improving the image of India from the typical
low quality mediocre typecast. This has also raised the bar for other
industries as well. Traditionally, India has been exporting low end, low-
technology oriented products like gems, jewelleries and
garments/apparels. With the advent of ITES-BPO industry the world
began to recognize that Indian products and services could also compete
and win against global competitors on quality parameters. India is now
also emerging as a research and development center for some of the large
ITES-BPO companies in the world, which is an acknowledgement of
Indian quality. It is worthwhile to note that 30% of companies worldwide
who have reached Level 5 of Capability Maturity Model Integration
(CMMI) are Indian ITES-BPO firms. Nearly, 75% of Fortune 500 and
50% of Global 2000 corporations source their technology related services
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from India with an increasing number of Multi-national Corporations
(MNC) outlining their investment plans for setting up R&D operations in
India (Palvia, 2005)
(viii) Impact on Employment Practices:
The ITES-BPO industry also consciously follows a diverse employment
practice and encourages diversity in the work place in terms of
qualification, abilities, gender and skill sets. ITES-BPO industry helps
create employment opportunities in smaller towns/cities, promotes
women empowerment and provides employment for differently-abled and
non-technical persons thus creating higher growth opportunities for youth
and the out-of-the-mainstream candidate.
(ix) Additional employment generation:
The indirect employment generated, at the rate of 4 additional jobs
created in the economy for every 1 job created in the sector, is even more
socially relevant as nearly 75% of the workforce employed in those
additional jobs are SSC/HSC or less educated.
(x) Driving growth of other sectors of the economy:
Apart from contributing to the growing income of its direct stakeholders
(promoters, shareholders and employees), the IT/ITES industry has had a
multiplier effect on other sectors of the economy with an output multiplier
of almost 2 through its non-wage operating expenses, capital expenditure
and consumption spending by professionals
(xi) Encouraging balanced regional development:
By gradually spreading their business operations to smaller Tier II/III
cities, the IT sector (besides generating revenue and employment) is also
assisting in improving the supply of talent pool and development of
physical and social infrastructure, either directly by themselves or by
20
spurring the Government to action. Some of the key impact of IT/ITES
sector has been,
i. Increase in registered IT/ITES units – The number of
registered and exporting units has risen steadily showing a
CAGR of 118 and 170% respectively as compared to 98-99.
ii. Employment – Supply of IT professionals, which was higher
than demand till 2004, now have a shortfall of 62,697. Demand
for IT professionals is expected to reach 500,000 by 2013-14
with the corresponding figures on indirect employment being
1,720,000.
iii. Education – While building and expanding capacity of
educational institutes are underway, IT majors are undertaking
training initiatives to improve student quality.
iv. Infrastructure and other amenities – Keeping in line with the
expansion/entry plans of major IT/ITES companies, IT parks
and townships are being built with a corresponding
improvement in other amenities like roads, housing, retail and
entertainment facilities.
(xii) Front runner in practicing good corporate governance:
The industry has been a front runner in practicing good corporate
governance and their commitment to infuse it in their business activities,
have led to creating a positive pressure within the industry, as well as in
other industries, with more and more companies adopting global
standards in corporate governance practices. The major IT/ITES
companies in India have in recent times received national and
international recognition for their corporate governance initiatives.
21
1.6 GROWTH OF INDIAN ITES –BPO INDUSTRY
The Indian IT-BPO industry has evolved significantly over the past few years and
has been a significant growth catalyst for the Indian economy. According to the
recent estimates the Indian -BPO industry crossed the magical figure of US$100
billion in revenues in 2012and is looking to grow at 1-14 % in the near term. Export
revenues for the Indian IT-BPO industry is expected to grow by 18.7 percent and
reach of USD 68.7 billion in FY2013 up from USD 50.1 billion in FY2010.
Figure 1.1 Indian IT-BPO revenue break-up as at 2011 end
According to NASSCOM the key drivers of the growth of the Indian ITES-BPO
industry are discussed below.
(i) Abundant Talent: The demographics are in favor of India as there is large
pool of young population, complemented by an educational infrastructure
which churns out large numbers of English speaking talent. India‗s
graduate outturn has doubled in the last decade and the talent pool is
22
expected to increase by almost 4 million in FY2013. The technical
graduate outturn is expected to number around 7 lacs while non-technical
graduate outturn is expected to cross 3.3 million. While India is ranked
second in terms of the total number of graduates available annually, it has
the largest number of ready-to-hire graduate pool.
(ii) Continued Focus on Quality – India‗s leadership has been sustained by
demonstrated process quality and expertise in service delivery. Moreover,
many Indian ITES-BPO organizations have successfully adopted several
global industry standards such as SEI-CMM, ISO, TQM, Six Sigma
Quality, and COPC. Furthermore, with an increasing requirement for a
secured environment, Indian ITES-BPOs are adopting standards such as
ISO 17799, BS7799, COBIT, and ITSM.
(iii) Sustained Cost Competitiveness (cost of labor, infrastructure cost and
currency exchange rates): According to an Everest study clients have
reported significant cost savings in lines of about 50 -60 percent as
compared to source location. India is capable of achieving this primarily
because it has access to highly skilled and English speaking labor at
relatively lower costs. The productivity levels of the Indian employee
base are also significantly higher. The advantage in cost competitiveness
is further reinforced by having a competitive infrastructure (e.g.
Telecom). This is also when you compare with other competing low-cost
countries such as Philippines, China, East European countries etc.
(iv) World Class Information Security Environment: India provides an info-
secure environment to the clients. This is achieved by individual firm
level efforts and complemented by a comprehensive policy framework
established by Indian authorities. Some of the efforts done in this
direction include strengthening the regulatory framework through
amendments to the IT Act 2000, reinforcing the cyber law initiative,
scaling up the National Skills Registry (NSR) and establishing a self-
regulatory organization.
23
(v) Rapid Growth in Key Business Infrastructure: The reduced cost of
international connectivity and increased service standards has helped the
ITES-BPO industry significantly. With critical business infrastructure
such as telecom and commercial real estate well in place, the government
needed to improve the other supporting infrastructure. STPI infrastructure
available across the country played a dominant role in the emergence and
development of the ITES-BPO industry. The 100 percent tax holiday
extended by the government under the STPI scheme also supported the
extensive growth of this industry.
(vi) Enabling Business Policy and Regulatory Environment: The Indian
government provided an enabling policy environment in the initial years
which acted as the catalyst for growth. Post liberalization, the government
encouraged foreign investments in this industry which not only provided
the fill up in capital but also facilitated the transfer of knowledge and
technology. The software technology parks of India (STPI) policy was
established for promoting the export of software and services from India.
Further in 2005, the Special Economic Zone (SEZ) Act made special
provisions for the IT-BPO industry in order to aid the continuing growth
of the industry. Due to this approach by policy makers the Indian ITES-
BPO industry has benefited by enjoying minimal regulatory and policy
restrictions coupled with a broad range of fiscal and procedural
incentives.
1.7 OPERATIONAL STRUCTURE OF INDIA ITES-BPO INDUSTRY
The Indian ITES-BPO industry can be divided in six broad categories.
i. Captive Units: These are units set up by MNCs and domestic companies to
undertake work for the parent company.
ii. Third-Party Vendors: These are independently owned units that execute
transactions and processes for multiple clients.
24
iii. Joint Ventures: This unit is setup in collaboration between an international
BPO company and Indian BPO company partner.
iv. Indian IT Software Companies owned: These units are created and added to
the service portfolio of Indian software companies ( Progeon and Spectramind)
v. Global BPO Players: These are global companies who have set up operations
in India (for example, Convergys, EDS, Accenture, Aegis, EXL, Genpact and
WNS).
vi. Global Consultancies: Global companies (such as Accenture), who have been
advising their clients on outsourcing are now leveraging this experience into
providing actual BPO service (Economist Intelligence Unit, 2002).
The most common form of ITES-BPO operating in India is that of either Captive
Units or the Third-Party Vendors (Budhwar et. al., 2006).As proposed by Deery and
Kinnie (2002) three ITES-BPO working models can be identified as: mass
production model which prioritizes call volumes, the professional services model
which seeks to provide high quality individualized services and, in between, the
hybrid mass customization model sharing features of both. The units operate on the
following models
Company owned Company operated model
Company owned Service Partner operated model
Service Partner owned Service Partner operated model.
1.8 ISSUES AND CHALLENGES CONFRONTED BY INDIAN ITES –
BPO COMPANIES
Listed below are the major issues and challenges that the Indian ITES-BPO
companies face today in their operations
High Level of Attrition
Even though India enjoys a large talent pool in terms of students passing out
from graduation and engineering schools, they are not typically industry ready‘
and not equipped with the skill sets that can be useful to the companies. This
25
means that while there is plenty of supply at the entry level (voice processes), but
there are huge demand-supply gaps in the middle management and senior
management levels. This has led to increased levels of poaching and attrition
cases. Presently, the average attrition rate faced by this industry is somewhere
around 30-35% as stated by NASSCOM. An employee in the BPO industry
generally ends up changing four to five jobs in a period of four to five years. The
attrition rate in non-voice processes is significantly lower than voice processes.
In the voice segment it is somewhere around 35-40 percent and in case of non-
voice or data based activity is around 10%.
Lack of Career Commitment
The other area of concern for HR managers is that most employees working in a
call centers or ITES-BPO setup do not see this industry as a serious or long-term
career option. This was the outcome of a recent study conducted by NFO India,
part of NFO World Group, and People Equity Consulting, a Bangalore-based HR
consultancy.
Nature of the Job
The work processes are monotonous and do not provide a challenging work
environment making it difficult to sustain interest in the long term. Employees
work in isolation where work is de-skilled and allocated automatically using
scheduling systems and is monitored and controlled by the management. The
jobs in ITES-BPO are typically characterized as 'dead-end' and offer few career
prospects (Deery and Kinnie, 2002).
Mismatch of Expectations
Expectations mismatch leads to higher attrition, this is partly due to the
perceptions created in the general public with respect to the career growth, type
of work, compensations offered, competition, etc
26
Communication Issue
Experts say that lack of effective communication is another contentious issue and
this problem emerges due to large number of employees being part of the company.
The absence of regular and effective two-way communication between agents, their
immediate team managers and the senior management is one of the reasons for high
attrition rates in the industry.
Generating Motivation and Increasing Efficiency
It becomes difficult to keep the motivation level of the employees considering the
fact that the job is repetitive and routine in many ITES-BPO operations. This is a
huge challenge for HR managers. This is particularly important considering the fact
that an important part of India's value proposition as the outsourcing destination is
based on productivity and quality - factors that critically depend on motivation.
High Training Costs
The ITES-BPO companies usually impart three types of training; soft skills training,
Pre-process training, Product, process and Helpdesk training. Start-ups will face a
higher training cost initially as they need to outsource the voice/accent and soft skills
training. The Process training in the start-ups is usually done by process trainers
from the customers‘ side and the BPO Company bears the expenses. However, on
reaching a stable growth stage, companies are able to build up a resource base and
avoid outsourcing. The training cost has grown by 45 percent as against total cost of
one employee, which has grown by 190 percent according to NASSCOM reports.
The Indian IT-BPO companies spend nearly INR 6,450 crore on training their
employees. (NASSCOM, Impact Study, 2010). The HR managers have to
continuously evolve career paths, motivate their employees and create a culture of
oneness, which will act as a retention tool in future.
1.9 PRACTICES ADOPTED BY IT/ITES COMPANIES
The fast growing IT/ITES industry has been struggling with several issues
concerning availability and quality of talent. The industry has responded to this issue
by evolving sustainable and innovative solutions. Since the educational institutes
27
lagged behind in supplying the requisite number of trained people required for the
industry and their curriculum could not keep pace with the changing trends in
technology, the IT/ITES industry themselves came forward and made massive in-
house training investments, which helped them power their growth and compete at
par with international giants in the global market.
The industry has also gone beyond and collaborated with the government, private
educational institutions as well as industry associations to contribute towards
capacity building, skill development and continual training of existing and potential
employees to enhance their capabilities and competitive skills. The industry is also
making efforts to ensure that employees are provided a stimulating and healthy
working environment for improving their level of satisfaction and productivity.
The following are some of the best practices followed by Indian ITES industry:
(i) Promoting women empowerment:
The growing trend in the number of women employed in this sector indicates
that not only does the industry offer equal opportunity to women but also has
in place proactive and sensitive mechanisms which counter the common
causes that discourage women from pursuing employment in the corporate
sector. Women employment in the industry is set to rise to 45% by 2010 from
the current 30%
(ii) Providing high growth opportunities for the youth:
The industry has created excellent employment and fast track growth
opportunities for the younger section of the population and is likely to
become one of the largest employers‘ of a growing ‗young population‘ of
India. The overall median age group of the sector is 28.9 years with 70% of
the workforce being in the age-group 26-35 years
(iii) Training of workforce:
The industry has played a pioneering and pro-active role in developing the
talent pool in the country by forging links with the academia and the
28
Government. It has not restricted its efforts to developing its own employees
but is also investing in raising the overall standard of education. The industry
has collaborated with academic institutions for bridging the gap between the
education imparted to students and the actual requirements in the job
scenario. Collaborations have been in the areas of curriculum development
and course design, training for students. NASSCOM has been involved in
developing standards for training and recruitment at entry level to make
students more employable. These training address both the technical and soft
skills training needs. Companies on an average conduct 163 training
programmes annually; with almost 80% spend on training entry level hires.
(iv) Promoting higher education:
The industry has emphasized upon developing its workforce by encouraging
and aiding up-gradation of skills and abilities. It has done so through various
means including provision of scholarships as well as training and
development activities. Many companies have tie-ups with educational
institutes for supporting the higher education needs of their employees and
provide full/partial scholarships thus supporting their career goals.
NASSCOM has been involved in building the talent base for high end skills
in areas like multimedia convergence and bio-informatics while working with
the Ministry to develop institutes that produce highly specialized
professionals.
(v) Improving the work environment:
IT/ITES companies have been taking the lead in providing a conducive work
environment to employees leading to increased productivity and better
morale. The facilities provided focus on health of employees by providing
gymnasium; yoga/meditation facilities as well as their safety through pick
and drop facilities. To cater to the need of providing a work-life balance,
particularly to women employees, the companies offer flexible working hours
and work from home option.
29
1.10 FUTURE OUTLOOK
The beginning of the new decade heralds the slow, but steady end of the worst
recession in the past 60 years. Global GDP, after declining by 1.1 per cent in 2009,
is has increased by 3.1 per cent in 2010, and 4.2 per cent in 2011, with developing
economies growing thrice as fast as the developed economies. Improving economic
conditions signifying return of consumer confidence and renewal of business
growth, is expected to drive IT spending going forward. IT services has grown by
2.4 per cent in 2010, and 4.2 per cent in 2011 as companies coming out of recession
harness the need for information technology to create competitive advantage.
Organizations now recognize IT‘s contribution to economic performance extending
beyond managing expenditures.
They expect IT to play a role in reducing enterprise costs, not merely with cost
cutting but by changing business processes, workforce practices and information
use. Government IT spending continues to rise across the world, focusing on
infrastructure and security. Growth in outsourcing is expected to supersede overall
IT spend reaffirming its potential to not only support short term, tactical goals of
cost savings, but also long term advantages of increased competitiveness,
efficiencies and access to emerging markets.
India has ample supply of talent, which is largely trainable in nature, not
employable. This leads to incremental training costs and increased downtime for the
industry, which is challenging keeping in mind quality talent availability in
competing countries. Currently, over 90 per cent of total revenues are generated
from the seven Tier-I locations, which are nearing peak capacities in terms of
infrastructure support.
India has to quickly develop other delivery locations to achieve its 2020 vision.
There are concerns around security – both physical and data related, in service
delivery, which would need to be addressed. Currency fluctuations have also dented
India‘s competitiveness, and steps need to be taken to address India‘s increased risk
perception. A key impact of the recession has been the rise of protectionist
30
sentiments in major markets for the industry. The impending discontinuation of
fiscal incentives and frequent changes in fiscal regulations are making the business
environment more challenging. Last but not the least, a number of new outsourcing
destinations seeking to emulate India‘s success have emerged, offering multiple
fiscal and training incentives, making them cost competitive.
Concerted action by all stakeholders around below parameters is required to capture
the opportunities and mitigate future risks. In doing so, stakeholders (industry,
NASSCOM and the government) will need to act together in an unprecedented
manner:
(i) Catalysing growth beyond today’s core markets:
Breaking ground in new markets (verticals, geographies, segments) through
reinvented offerings and business models.
(ii) Establishing India as a trusted global hub for professional services:
Building a conducive business environment (improved infrastructure, public
services, corporate governance, and security) and a strong global image.
(iii) Harnessing ICT for inclusive growth:
Stimulating inclusion of citizens by enabling technology led solutions in
healthcare, financial services, education and public services, leading to
increased connectivity, improved soft infrastructure, and a balanced regional
development.
(iv) Developing a high calibre talent pool:
Bridging a crucial talent gap by addressing gaps in tertiary education, at the
same time fuelling efforts to upgrade curriculum, faculty and training
methodologies.
(v) Building a pre-eminent innovation hub in India:
Encouraging intellectual property, establishing distinctive capabilities and
fuelling entrepreneurship. India‘s technology and business services industry
31
has flourished in the last decade. A bright future lies ahead and the industry
has much to look forward to, with the potential to quadruple its revenues over
the next decade.
India is one of the fastest growing economies of the world crossing US$1 trillion.
Majority of the fortune 500 and Global 2000 corporations are sourcing IT – ITES
from India. Over the last two – three years, a number of reputed companies in
electronic / IT / Telecom hardware manufacturing like Nokia, Motorola, Foxconn,
Flextronics, Aspocomp, Samsung, LG, Ekoteq, Ericsson, Alcatel, Tessolve and Dell
have either setup their units or are in the process of investing in the country. India is
rapidly becoming an R & D hub. All the top 10 global fables design companies have
operations in India and 17 of the top 25 semiconductor Companies worldwide have a
strong presence in India. IT- ITES is estimated to helped create an additional 60 lakh
job opportunities through direct and induced employment in telecom, power,
construction facility management, IT transportation, catering and other services.
1.11 INDIA AS ITES HUB
Over the past decade, the Information Technology (IT) industry has become one of
the fastest growing industries in India, propelled by exports. The key segments that
have contributed significantly (96 percent of total) to the industry's exports include -
Software and services (IT services) and IT-enabled services (ITES) i.e. business
services. Over a period of time, India has established itself as a preferred global
sourcing base in these segments and they are expected to continue to fuel growth in
the future. Exports contribute significantly to the Indian IT industry's revenues with
key segments being IT services and software and ITES- BPO. Indian IT and ITES
companies have created global delivery models (onsite, near shore, offshore),
entered into long term engagements with customers, expanded their portfolio of
services offerings, built scale, extended service propositions beyond cost savings to
quality and innovation, evolved their pricing models and have tried to find
sustainable solutions to various issues such as risk management, human capital
attraction and retention and cost management.
32
Demand dynamics
A key demand driver for the Indian IT services and ITES industry has been the
changing global business landscape which has exerted performance pressures on
multinational enterprises. While companies initially sourced from the Indian IT and
ITES industry for cost, quality and enhanced competitiveness have induced them to
continue and expand. Some companies have also viewed sourcing differently
(beyond cost and quality) and achieved non-traditional benefits of sourcing from
India.
Sourcing models
A wide range of sourcing models have evolved for sourcing IT and ITES services
from India based on the required capabilities as well as risk profiles. There is an
increasing trend towards a global delivery model (higher proportion of offshore in
the onsite - near shore - offshore mix) as well as a preference for captives and co-
sourcing arrangements, though mature captives are gradually tending towards
becoming third party service providers.
In evaluating third party service providers the following evaluation factors need to
be borne in mind as shown in table 1.3.
33
Table 1.3 Factors favouring India as the preferred destination for ITES
S
NO
Parameters Weigh
t age
Partner
3
Criticality
1 Cost – value 20% Vital
1.1 Cost per transaction / seat /FTE 5
1.2 Payment terms (from Invoice date) 5
1.3 Additional Charges (if any) 5
1.4 Termination Clause (in days) 5
2 Scalability 10% Vital
2.1 Infrastructure for uninterrupted service 2
2.2 Provisioning for additional capacity 2
2.3 Infrastructure for additional capacity
provisioning
2
2.4 List of circles where the Partner can provide
service
2
2.5 Financial Strengths (Turnover, Assets etc) 2
3 Technical Compatibility 10% Vital
3.1 Voice Connectivity for Call delivery 2
3.2 Data Connectivity for access to CRM and
Other portals
2
3.3 ACD/ PBX technology with Compatibility 2
3.4 Voice Logger with businessCompatibility 2
3.5 Reporting tools with Compatibility 2
4 Industry Experience 5% Essential
4.1 Experience in respective domains 3
4.2 List of circles in which franchisee currently
operates
2
5 Language 10% Vital
5.1 Availability of Multi-lingual Manpower 5
5.2 Availability for Voice Process 3
5.3 Availability for Non-Voice Process 2
6 Data security 7% Vital
6.1 Measures to ensure data security 4
6.2 Data security solutions – Anti Virus solutions 3
7 Existing relationship 10% Desirable
7.1 Tenure of association with Majorplayers 5
7.2 Performance of processes currently handled
by existing Partner
5
34
8 Credentials 5% Desirable
8.1 COPC Certification 1
8.2 ISO 9000, ISO 27001 1
8.3 Six Sigma 1
8.4 RBNQA 1
8.5 NASSCOM Membership 1
9 Statutory Compliance 10% Vital
9.1 PAN Card 1
9.2 Service Tax Registration 3
9.3 PF Registration 2
9.4 ESI Registration 2
9.5 MOA/ Partnership deed 2
10 Regulatory Compliance 8% Vital
10.
1
OSP License 3
10.
2
Telemarketing License 3
10.
3
STPI Debonding Certificate 1
10.
4
Authorized Signatory Resolution 1
11 Ramp Up/ Down Capability 5% Desirable
11.
1
Deployment of additional capacity 2
11.
2
Time Required capacity expansion 2
11.
3
Time Required for ramp down 1
Total 100%
(Source: NASSCOM)
The India advantage
Various country comparison studies have established the attractiveness of the Indian
IT services and ITES industry. The key attributes that have enabled India to establish
itself as a preferred sourcing base include:
(i) Vast Access to skill base
o Large pool of resources for IT and ITES operations - 14 million
graduates, 1 million technical resources, one of the largest English
speaking manpower in the world.
35
o Availability of quality delivery management talent from international
banks and consulting firms.
o In the future, while the increasing demand for resources may put
pressure on the resource base, initiatives are currently underway to
enhance the supply of quality human capital in the country.
(ii) Strong quality orientation
o ISO9001, COPC.6 sigma are some of the established quality
initiatives.
o 90 out of the world's 117 SEI CMM Level 5 companies are from
India.
(iii) Availability of high quality infrastructure
o Concerted efforts to provide dedicated, international quality, cost
effective real estate at software parks, Special Economic Zones (SEZ)
and knowledge sector industrial estates.
o Availability of high quality international and national dedicated
telecom infrastructure with high level of redundancies insulating
centres from Public Switched Telephone Network (PSTN) quality.
o Availability of multiple levels of backups providing insulation from
public system issues, if any.
(iv) Cost advantage
The cost impact of sourcing from the Indian IT and ITES industry can be
significant due to the lower wages and lower cost of living. While the
increasing demand for resources is gradually adding pressure on labour
costs, companies within the industry are attempting to sustain cost,
competitiveness through appropriate location choices and revamped
human resource management practices.
(v) Enabling policy environment
The Government of India is taking proactive measures to encourage
investments in this sector. Significant measures and incentives include a
liberalized FDI regime, single-window clearance facility, income tax
holiday and customs duty exemptions. State governments too are
36
demonstrating a proactive approach towards attracting and facilitating
investments and are providing support for the development of specialized
infrastructure, focusing on development of a larger base of cities/towns to
meet the needs of the industry and undertaking measures to continually
enhance the supply and quality of manpower.
(vi) Mature industry eco-system
The support infrastructure for the Indian IT and ITES industry which
includes specialized firms for functions such as recruitment, training,
property management, security, fleet management, book-keeping and
payroll as well as industry associations has evolved over the years.
(vii) Commitment to address security concerns
Indian companies as well as the government have been active in adhering
to international security standards such as ISO 17799, BS7799, COBIT
and ITSM. The required legal framework has been laid down by the
government and a revamp of the country's Information Technology Act,
2000 is expected in the near future. The revised legal framework is likely
to include provisions against a new range of computer crimes to cover
areas like privacy, information protection and harming computer systems
through viruses.
A majority of IT / ITES activity in India is concentrated in seven cities / clusters in
India. With concerted development efforts of a wider base of cities / towns, the
geographical spread of IT / ITES activity is gradually expanding to cover cities such
as Ahmadabad, Jaipur, Coimbatore, Kochi, Trivandrum, Chandigarh, Mysore,
Mangalore, Madurai and Bhubhaneswar. Various companies have chosen to locate
their operations in one or more of these seven clusters based on parameters such as:
o Leveraging local experience and assets
o Spreading to reach right skills at right costs
o Business continuity requirements
37
Table 1.4 IT Clusters and Key Companies
Information
Technology Clusters
City / Cluster
Key companies in the location
(Illustrative and not exhaustive)
Mumbai / Navi Mumbai /
Thane
ABN Amro, Morgan Stanley, Citigroup, Accenture, Tata
Consultancy Services, World Network Services (WNS)
(Gurgaon / New Delhi /
Noida)
Genpact (formerly GE Capital International Services),
Sapient, HCL Technologies, American Express,
McKinsey research centre, E-Funds Corporation
Bangalore JP Morgan, Goldman Sachs, Siemens, Infosys, Wipro,
Tata Consultancy Services, Cognizant Technology
Services, Genpact (formerly GE Capital International
Services)
Chennai Citigroup, Standard Chartered (Scope International),
World Bank, Ford, Hewlett Packard, AIG, Infosys, Tata
Consultancy Services, Cognizant Technology Services
Hyderabad /
Secunderabad
HSBC, Microsoft, Franklin Templeton, Infosys, Wipro,
Tata consultancy services. Cognizant Technology
Services, Genpact (formerly GE Capital International
Services)
Pune World Network Services, Cognizant Technology
Services, HSBC, Veritas, Sybase, AXA, Mellon
Financial
Kolkata HSBC, Genpact (formerly GE Capital International
Services), IBM, Infosys, Tata consultancy services,
Cognizant Technology Services
(Source: Wikipedia, 2012)
38
Location selection is a very key criteria for starting up, growing and sustaining the
BPO business. The matrix shown in Table 1.5 is ideal to zero-down on a location
based on type of activity involved. Figure 1.2 shown below depicts the five stage
model of a typical BPO.
Table 1.5 Key Location Factors
S No Parameters Criticality Weightage Sub
weightage Remarks
1
Manpower - 40% -
Availability Vital 16% 40% Ease of availability
Skilled Vital 2% 5% Availability of educated and
trained manpower
Multi-Lingual Essential 8% 20%
Employable base must be
conversant in 2 or more
languages
Voice Essential 4% 10% Employable base must have
good voice/telephone skills
Non-voice Desirable 2% 5% Employable base must have
good analytical skills
Attrition rates Desirable 8% 20% Low attrition rates
2
Infrastructure - 20% - -
Land/ Building
availability Vital 6% 30%
Readily available property
options
Property
readiness Vital 3% 15% Ready to move in immediately
Public Transport
facility Essential 2% 10%
Readily available means of
transport
Telecom
Connectivity Vital 6% 30% Closeness to ILT
Power Essential 3% 15% Access to uninterrupted power/
backup sources
3
Cost
Competitiveness - 30% - -
Remuneration Desirable 18% 60% Minimum Wages, Employee
salaries, Per capita income
Rentals Essential 12% 40% Low Capex/ Opex, Taxation,
Incentives/ Concessions
4 Government
Support Desirable 5% 100% Stability
5 Current/ Other
BPOs existing Desirable 5% 100%
Access to trained/ skilled
manpower.
39
Fig
ure
1.2
Fiv
e S
tage
Ap
pro
ach
to
BP
O
40
1.12 CONCLUSION
The information technology (IT) and information technology enabled services
(ITES) industry has been one of the key driving forces fuelling India‗s economic
growth. IT is one of the world‗s fastest growing economic activities, which
envisages easier flow of information at various levels in the desired pattern. The
Information Technology enabled Services (ITES) sector has not only changed the
way the world looks at India but has also made significant contributions to the
Indian economy. IT enabled Services (ITES), also called web enabled services or
remote services or Tele-working, covers the entire gamut of operations which
exploit information technology for improving efficiency of an organization. These
services provide a wide range of career options that include opportunities in call
Centre, medical transcription, medical billing and coding, back office operations;
revenue claims processing, legal databases, content development, payrolls, logistics
management, GIS (Geographical Information System), HR services, web services
etc.
Information Technology (IT) is defined as the design, development, implementation
and management of computer-based information systems, particularly software
applications and computer hardware. Today, it has grown to cover most aspects of
computing and technology. The largest firms globally include IBM, HP, Dell and
Microsoft.
The Information Technology-Enabled Services (ITES) industry provides services
that are delivered over telecom or data network to a range of external business areas.
Examples of such business process outsourcing (BPO) include customer service,
web-content development, back office management and network consultancy etc.
India is set to become the most popular destination for BPO operations. BPO
industry in India is driving the country‘s Socio Economic Transformation. The
industry is inventing, reinventing and transforming in a short span. BPO industry is
the next Industry driver and putting India on the world map. A large number of
41
multinational companies are outsourcing their business processes offshore to Indian
BPO companies. Theoretical literature mentions several advantages of business
process outsourcing. India has been one of the first nations to step into the call centre
outsourcing industry. Global organizations have already outsourced call centres to
India and have found India to be an ideal outsourcing provider. Today, some of the
world‘s global giants have a base in India, from where they provide customer
support services to their worldwide customers on a 24x7x365 days basis.
* * *
42
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Rai, Saritha (2006),"Is the Next Silicon Valley Taking Root in Bangalore?‖ New
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OTHER SOURCES: REPORTS AND WEB LINKS
Indian IT Industry: NASSCOM Analysis
Indian ITES - BPO Industry: NASSCOM Analysis
India's IT-BPO performance in 2006, NASSCOM Strategic review 2007.
India BPO Forum
Key highlights of the NASSCOM.IDC study on the domestic services (IT-
ITES) Market opportunity
McKinsey. Highlights of the NASSCOM, McKinsey Study Report on the IT
Enabled Service Segment. New Delhi: National Association of Software and
Service Companies, 1999.
NASSCOM, Nasscom's Handbook: IT Enabled Services Background and
Reference Resource. New Delhi: National Association of Software and
Service Companies, 2001.
NASSCOM, strategic review 2007
NASSCOM, strategic review 2008
o www.ibef.org
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o www.economictimes.com
o www.wikipedia.com
o www.nasscom.in
o www.indiabpoforum.in
o www.scholar.google.com