India’s IT enabled services (ITeS) or business process outsourcing (BPO) industry has really come of age. The India story of back office outsourcing started with assignments such tele-marketing or medical transcription etc. It moved on to jobs such as accounting and transformed into knowledge process outsourcing (KPO). And now, it is getting fully integrated with the entire gamut of IT services. Today, any deal of IT services brings BPO work as well, and BPO deals are getting full support of the IT services—all under one roof and one brand.

It’s not long ago when Business Process Outsourcing (BPO) units were considered not more than a poor cousin of the IT services business. Take the name of any reputed Indian IT services company, and you would find that they started their BPO business as a separate subsidiary, only to keep distance from the ‘low-skilled’ job. When Infosys Technologies, India’s second largest IT services company decided to foray into the BPO segment, it formed Progeon as a separate unit. Satyam Computer, India’s forth largest IT services company had formed Nipun to join the bandwagon. HCL Technologies, India’s leading enterprise technology solutions and services company also kept the BPO unit as a separate entity only.

But now the situation has changed completely. The IT services companies are merging their BPO outfits to fully integrate it with their core business. BPO is no more a poor cousin of the IT services companies, but an important part of the services portfolio offered by these companies. And guess why! Not because standalone BPOs have grown up too much to pose a threat to them. Instead, they are finding the integrated approach the best answer to compete with the world majors such IBM, EDS, HP and Accenture. IBM, which acquired Indian BPO company Daksh eServices in 2004, has in fact fully integrated its India operations.

Integration was the compelling reason for Infosys to buy out Citicorp, part of Citi Group, the International financial conglomerate with operations in consumer, corporate, and investment banking, from Progeon for $115 million against Citi’s initial investment of $20 million. HCL Technologies has already completed the merger of the BPO unit with itself. One need not be surprised if you hear a similar thing about Satyam’s BPO arm Nipun very soon. Going forward, more and more companies are expected to adopt a similar strategy and the boundaries between IT services and ITeS may get blurred.

A customer may not like to deal with one company to handle its back office work, and another company to maintain the systems for that work. Normally, the customer would prefer to have a single vendor for the sake of better integration, compatibility and his own peace of mind. And of course, when he is proposing to buy a bigger piece of cake, he may have bigger say in the price determination.

The new enhanced focus on the BPO market by the large IT services companies is certainly going to make the battle for market share more interesting. The standalone BPO companies (including those who are credited for inventing the BPO opportunity for India) will now have to face the fierce competition from the Indian IT services majors on the one hand, and the international biggies on the other. IBM has already made India as a major base for its global delivery. And with MphasiS, IT solutions and services company, coming into its fold, EDS, provider of business and technology solutions, is also all set to use India as a hub. The other trend that is snatching their market is the setting up of captive units by foreign companies in India. These companies want to avail the ‘India advantage’, but don’t want to share it with a vendor. This strategy has it’s own benefits and risks as well. The other variant of the same trend is the build-operate-transfer (BOT) model, in which the vendor builds a BPO unit for the client, runs it for some time, and transfers the unit to the client at a time when the client finds it comfortable to take the control in its hands.

Of course, the standalone third party BPOs as a group are not going to die, but the me-too category will certainly suffer in the process. The standalone BPOs need to play around volumes and niche strengths. And right now it might be rare, but standalone BPOs and mid-size standalone IT services companies may also come together to form an alliance. The success of this model would depend on how successfully they synergize their marketing initiatives and finally they make their operations compatible.

Source: NASSCOM