BPOs see a clear advantage over IT

Source: Times of india

Bangalore: Business process outsourcing firms believe they will be less impacted by the global economic meltdown than their IT counterparts because much of what they do involves facilitating day-to-day operations.

BPOs offer services like payroll processing, bill/invoice processing, loan processing and insurance claim processing, as also equity research, business analytics, merchandising, and financial planning and analysis. These are operating expenses for the client company and the return on investment (ROI) for the BPO is mostly real-time. On the other hand, a large chunk of IT investments are capital expenditures — mid to long-term — and are therefore seen to be discretionary and deferrable. So while some analysts think many of the core areas of the IT sector could see declines in revenue of as much as 30% over the next year, they believe it could be lower than 10% for most BPOs.

Avinash Vashistha, MD of technology consultancy firm Tholons, says the slow down impact on BPOs will be limited. “Application support and maintenance and project implementation services of IT are likely to take a dip of over 30%. But BPOs are about core transactions and day-to-day functioning and clients will find it tough to delay these projects or make cuts in them,’’ he says.

P V Kannan, CEO of BPO firm 24/7 Customer, says the flip-side of the recession will work well for the sector. “It opens up huge opportunities for BPOs. The discretionary portion is very small in BPOs. Existing customers are in fact accelerating their offshore plan as they are under huge liquidity pressure. Many customers will adopt the outsourcing model from the first quarter of calendar 2009,’’ he says. Currently, processing services account for 60% of the industry while the rest 40% comes from core services (business analystics, financial planning etc). Last year, the ratio was 70:30 and its likely at 50:50 in 2009. Also, the share of voice based services has come down from 95% (India gets 5% of the global voice market) a couple of years ago to 80% now and is expected to fall further. “All these trends indicate that highvalue deals are likely to grow during 2009 and beyond,’’ says Sabya Sachi Satpathy, senior director of consultancy firm NeoIT. “Everyone’s worried about liquidity. Better management of operational spends saves money for customers. BPOs will cash in on this trend during these tough times,’’ says Partha De Sarkar, CEO of BPO company HTMT Global Solutions. Much of the core processes currently go to the Philippines, Mexico, Brazil and Ireland. Opening near-shore locations is expected to help India capture some of this flow, and Indian companies are beginning to do that.