Growth in Domestic BPO Market to outpace that of offshore BPO

New Delhi, July 29 (ANI): While the offshore (international) BPO market faces pressures with economy-wide slowdown in developed markets, the domestic BPO market is getting ready to take off.

According Arun Jethmalani, CEO, ValueNotes, "Unlike the overseas business, labor or cost arbitrage does not drive the domestic BPO market. It's strategic factors such as the need to scale rapidly, focus on core competencies, enhanced productivity and reduced time to market that are driving domestic demand".

ValueNotes' research indicates that the domestic BPO industry stands at an inflection point, with the growing scale of Indian buyers as well as the emergence of significant vendors with greater capabilities.

The recently released report by ValueNotes estimates the share of third party revenues is 27 percent of the domestic BPO market, at Rs. 18 billion for FY08. This is expected to grow at a CAGR of 44 percent over the next four years reach Rs. 77 billion by FY12.

Specific triggers for heightened outsourcing differ across verticals. While deregulation, massive growth and entry of new players drives outsourcing amongst telecom operators; severe competition and widespread adoption of IT are enabling growth in the banking sector. However,industry growth (growth of organized sector) coupled with aggressive adoption of IT by Indian companies will remain as compelling drivers for outsourcing across all segments.

Further policy reform or de-regulation, especially in markets like banking, retail or government; could provideignificant discontinuous growth opportunities that will make these estimates appear conservative.

The study found that there are over 700 vendors offering a variety of BPO services to domestic clients. Most of the top vendors have grown their domestic BPO operations by over 60 percent over the last one year. A number of international focused BPOs (such as Infosys, Genpact, etc) are now seriously looking at the India market. However, services outsourced by the Indian companies are largely limited to low value, high volume, back office jobs and customer support activities.

Managing rapid growth while maintaining competitive costs and quality will be critical to the growth of BPO service providers. Building and developing specialized services and solutions that provide greater value will be a key challenge for vendors to sustain profitable growth in the long term.

According to Pranav Dixit, analyst and co-author of the report, "Potential for BPO services will rapidly increase especially for verticals such as Government, Financial services and Retail. As clients mature in their IT initiatives, the scope to leverage on experience in IT services outsourcing is set to expand."

Adds Neeraja Kandala, analyst and co-author of the report, "Aggressive expansion plans of existing players coupled with entry of large international BPOs will intensify competition in the BPO market. With a large number of small and mid-sized vendors focused on the domestic market, inorganic growth will be an attractive option for the international players looking to build scale rapidly. We expect increase in M and A activity post 2008."

The ValueNotes report: "Opportunities in the Indian Domestic BPO Market" provides an indepth analysis of the domestic BPO market. The study analyzes the sectoral opportunity and emerging trends in the large and emerging verticals - Banking, Financial Services, Insurance, Telecom, Government, Retail, Logistics, Airlines and Travel and Hospitality. (ANI)