Business Process Outsourcing (BPO) From USA to India
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Published: Thu, 22 Feb 2018
CHAPTER NO.1: INTRODUCTION
The business environment is changing rapidly in recent years and is affecting business all over the world. The management of various businesses are looking for a way to minimize the cost so the profit can be maximised. This will ensure business growth and sustainability. Hence many international companies are adopting the outsourcing in order to minimize the cost where there is less competence. IBM Daksh is one of the major Business Process Outsourcing (BPO) company in India where many Multi National Companies (MNC) have outsourced their business.
The purpose of this proposal is to help me organise my ideas and clarify my thoughts. I would also use this proposal to convince my audience that this research proposal is feasible.
My working title of the topic areas is BPO industry in India.
1.1 BACKGROUND OF THE STUDY:
The study investigates BPO from USA to India, a case study in IBM Daksh, how BPO has impacted on India with different perspectives. Adopting qualitative case study research method, the organizations overall business strategy will be discussed and how they outsource their non core functions to other expertise company. It will explain the integration of outsource with business strategies.
This assessment is based on the actuality that BPO is emerging as a market and has become more common in European countries and it has become a comprehensive part of business deals. Analysts are estimating a remarkable revenue growth of business process outsource transactions and dreaming that IT business process outsourcing will touch reach your zenith of market.
Experts predict that BPO revenue will increase 13.8 percent per year. The most accurate predictor of BPO market said that worldwide BPO industry US$7.5 million in 2009 and US$11.9 by 2012, whereas McKinsey had predicted that worldwide BPO will be US$500 billion by 2008 that almost has proven in the last 3 years.
Halvey, John K (2007) defines business process outsourcing as outsourcing of one or more business processes to a third party vendor who is an expert of those functions. BPO focuses on the overall process to minimize the cost and maximize profits. As the competition grows globally, all the organizations must want to maintain a competitive edge and must function more effectively in order to sustain a position in the market. In some sense organizations want earn more revenue and want less operational cost. So in BPOs management turned over to the vendor, who in return commits to reduce costs, provide effective services and gain customer satisfaction.
With the IT – outsource market growth, BPO customers are looking for more productivity, improve methodologies, sharing of resources and customer satisfaction. As the global telecommunication is fastest, companies are shifting work to international vendors, although many countries have specialization in different fields. India, the core of business process outsourcing has expertise in engineering and technical services. Chinese and Mexicans are expert in manufacturing whereas U.S. analyse the business processes in an effective way along with creativity. Philippines are good in administrative skills. There is no doubt that Indian BPO industry is more favourable destination of world. Indian BPO industry has many reasons to attract European countries for investing here. India has the largest pool of workforce of low-cost technically sound, English speaking and expert in engineering. Their telecom sector has improved and meeting the U.S. outsourced call centre requirements. In addition being technically sound, the Indian manpower work at lower wages in comparison to other developed countries of the world. Flexibility in working hours is another major attraction for developed countries to work in Indian BPO. It is because of different time zone and geographical conditions. Due to all these factors Indian BPO is most desirable business environment for European countries.
The economic expansion of any country is very important for its growth. BPO contribution to GDP is very high gradually. For the year of 2003 the GDP contribution was 0.2, for 2003 was 0.5 and for the year 2009 was 2.5. This increased contribution to Indian GDP shows that IT-BPO industry has significant mark in the country’s economy. Due to these thousands of people get employment.
1.2 REASONS FOR CHOSING THE TOPIC:
Business process outsourcing is becoming increasingly important throughout the world. BPOs may integrate the IT management and business operations at the same level; it is highly beneficial for business processes. Moreover it involves the strategy of core operations of European countries with developing countries to get beneficial of lower cost. The United States market has been above all profitable for Indian BPO companies because of the 12-hour service providence, low cost manpower and skilled expertise. Higher management have also understood that for lower operational cost, it is essential to outsource non-core function to outside expertise. For highlight this industry benefit the researcher has chosen this topic for his dissertation.
1.3 AIMS AND OBJECTIVES OF RESEARCH:
The main objective of this research is to introduce the business processing units. Why they need to come into existence and how they are beneficial for India’s economy. For five years every American company has its business processing units in India and they are earning huge amount. Then the researcher finds out the various drivers and challenges of Indian BPO Industry. International Business Machines (IBM) is a large company of USA. This research is to explore the reasons that why IBM has chosen India for their business process unit. The factors which are supported for India to maintaining its top position in this sector will be discussed as well. The overall objective of this dissertation is to explore the IBM Daksh which was started in 2004, its top ten BPO’s of India. What are the Impacts of BPO in India in terms of economy? Because of new IBM Daksh more job opportunities are bringing in a new generation as already this BPO is serving 25,000 employees in India. How BPO’s are affecting culture and lifestyles, educational system and Development of rural areas as new projects are going to provide job opportunities for rural area people. To achieve the aims and objectives of the study, some of the questions are below which must be met, are as follows:
- To explain the Business Process Outsourcing (BPO)
- To discuss the various drivers and challenges of Indian Business Process Outsourcing (BPO) Industry
- To analyse the competition of India with other countries regarding Business Process Outsourcing (BPO) industry
- To understand the drive of Business Process Outsourcing (BPO) in India
- To discuss briefly about International Business Machines (IBM)
- To investigate why International Business Machines (IBM) has chosen India for IBM Daksh
- Discuss the rapid growth of IBM Daksh in India
- To analyse the impacts of BPO industry in India in terms of economy and Culture and life style
1.4 STATEMENT OF PROBLEMS:
The literature shows that Business Process Outsourcing (BPO) industry has rapidly increased in India. The study will investigate the obstacles and challenges of Indian BPO Industry. This will also highlight the demanding drivers for Indian BPO industry. Researcher will engage looking at how the IBM has introduced their BPO in India and how these steps of organization are aligned to its strategic planning process. Moreover the impact of BPO industry over India’s economy will also be discussed. Case study discussion will explore the BPO industry in India and how India is leading in this industry. The remarkable growth of IBM Daksh will also be discussed.
1.5 IMPORTANCE OF THE STUDY:
With the changing trends of business globally every large size organization emphasis on cost reduction and effective quality services. To reduce the cost, organizations delegate non-core functions of business process outside the organization. The term BPO refers to business process outsourcing and it means outsourcing in all the sectors. Technological changes are integrating businesses with new trends and BPO can be differentiated in terms of using new technology and being implemented by current one. This research is important to the research and development for the Indian BPO and IBM Daksh, and also equally important to the researcher.
This study is beneficial for HR managers at IBM Daksh to look back into the procedures against retaining the talent pool. Researcher compares the Indian BPO industry with other blooming outsource countries, this will give a chance to improve industry and fill their gaps.
Finally this dissertation help the researcher gain an understanding of several basic concepts in BPO and enhances his knowledge after consulting many books and journals along with online web sources. This will help the researcher gather information about upcoming threats for business process industry worldwide. It will help their management improve infrastructure and concern about security issues.
1.6 SCOPE OF THE STUDY:
Throughout the world business trends are changing and Information technology is spreading over business strategies. Business process outsourcing is also fast growing industry with the high growth of IT sector globally where key players are India, China, Canada, South Africa and the Philippines. India is most beneficial IT-BPO sector in developed countries. India is retaining their customers of BPO industry by providing them with low-cost manpower, proficient in English and technically sound. They have low cost advantage as compared to other European countries. Time zone difference and 24 hours service providence is another key point of Indian BPO sector. Because of all these factors which make India more efficient and cost effective BPO centre for developed countries. IBM decided to open its BPO in India with the name of IBM Daksh. This BPO is dealing with IT help desk, procurement, human resources, after sale customer support, customer growth etc. The information gathered from this study will be beneficial for IBM Daksh management and Indian IT-BPO industry; in case they can concentrate suggested recommendations to have come up solution for talent retention.
1.7 LIMITATION OF THE STUDY:
According to researcher the aims of the research have been partially achieved. The limitation of the research was that the researcher not taken interviews from the management of no concerned areas or departments of organization. Though, interviews were engaged with the outsource department of organization and employees of that BPO. Other BPOs employees of Indian industry were also interviewed by a researcher. While both the employees and the higher management at IBM Daksh were quite helpful. Along with informative interviews the document study and literature review proven very knowledge full for the researcher. Adequate in depth study was not possible due to lack of resources and time limitations.
The researcher adopted the two approaches in order to understand the Indian BPO industry and its implications in Indian economic life. Firstly, it contains a concise literature review about Indian BPO industry and why IBM chose for Daksh.
The second phase explores the reasons that why IBM chose Indian BPO industry for opening their unit. For this purpose case study methodology has been used.
1.9 ORGANIZATION OF STUDY:
Chapter No. 2 (Literature Review)
This chapter revolves around the business process outsourcing. Furthermore the implementation of BPO in India is described. Increasingly some challenges of Indian BPO industry and how Indian BPO industry overcome those factors. Finally, the competitors of Indian BPO industry are discussed and under case study IBM will be reviewed.
Chapter No. 3 (Research Methodology)
This chapter will discuss the investigative strategy for this study, what practice was used for interviews and the limitations of the interviews. In-depth personal interviews regarding study subject were conducted. Document study was also used to help the researcher. Researcher adopted a critical realist post-positivist approach. Case study methodology was used for this study.
Chapter No. 4 (Analysis and Discussion of Data)
This chapter explains the business process outsourcing and how India is competing with other countries in this industry. This chapter provides the quantifiable reasons of India to be standing in top position BPO industry globally. Along with this, Indian BPO industry challenges are also highlighted. How Indian BPO industry is beneficial for IBM Daksh is also mentioned in this part of study. The rapid growth of IBM Daksh and its impact on Indian economy is also provided. At last findings of the study are analysed and discussed under the light of literature.
Chapter No. 5 (Conclusion and Recommendations)
In this chapter researcher has provided with conclusions about this study. The aim of study has been achieved and recommendations for the organization are also here. Further research ideas are also provided by the researcher.
CHAPTER NO. 2: LITERATURE REVIEW
The chapter explains the BPO and an overview of Indian BPO industry, how the BPO industry is effecting on India. How it is becoming imperative for European business units, along with the benefits of BPO.
Moreover this chapter discusses the IBM Daksh case study and how they choose India for their BPO industry, thereafter company gain competitive edge. Data collected from books, journals and documents on Indian BPO industry.
2.1 BUSINESS PROCESS OUTSOURCING (BPO):
According to Hoboken, N.J, John Eiley (2005, pp-5) the delegation of non-core functions of particular organization to other external resource is called the Business Process Outsourcing (BPO). In other words the revolutionary and innovative telecommunication infrastructure is an essential part of this process that gives the life to business process outsourcing.
Eltschinger, Cyrill (2007, pp-2-3) explains the process of transferring the business processing operations to an external service provider or resource for getting solve those functions in accountable manner is called Business Process Outsourcing (BPO). Basically this concept is derived from assign inside functions of company and delegate outside firm to handle them and get paid. Another positive impact of BPO is Value-Added Outsourcing. Why some functional area is turned over to an external source? In fact the external resource can add value to the action that becomes cost effective for the company.
According to Thomas N(2005, pp-1-2)Business process outsourcing (BPO) can be explain as some of business processes goes to an external vendor within the organization. Because of fast technology, telecommunication infrastructures are ruling over old methods of communications so Business process outsourcing (BPO) initiatives often contain the transfer the work to international vendors.
BPO industry is often indicated as a socio-technical industry because it clubs the technology with the social beings or human resources at a vast scale in order to reach millions of clients all over the world M. Purwar (2010, pp-4). The employees who leads the team and take initiatives must train employees regarding the technologies used in that strategy. Nontechnical managers cannot fill all expectations; they cannot reach the potential of required abilities.
Outsourcing system is used in agreement for services for that are not having expertise. By outsourcing they can focus on their time, money and energy. The companies can concentrate on other core functions in a better manner.
2.1 BUSINESS PROCESS OUTSOURCING (BPO) INDUSTRY:
The business environment is changing rapidly in recent years and is affecting business all over the world. The management of various businesses are looking for a way to minimize the cost so the profit can be maximised. This will ensure business growth and sustainability. Hence many international companies are adopting the outsourcing in order to minimize the cost where there is less competence.
Outsourcing is a useful thought used in business and secretarial. It began in the early eighties when the management of the large organizations started to deliver their non-core functions to an external organization to get them done in a specialized way. Outsourcing was not officially recognized as a business strategy until 1989. Though, many organizations were not self-sufficient so they delegate some of their functions to outsiders. Outsourcing support services is the next stage. In the 1990s, when organizations started to concentrate on cost-saving measures, they started to outsource few functions; necessary to run a company. High level management started search for vendors and contracted with rising service companies to deliver non-core functions of company like human resources, data processing, payroll, accounts, security, plant infrastructure maintenance (Alexander & Young (1996).
In outsourcing, the external organization would take on the management of the outsourced function. In outsourcing, the outsourcer and the outsourcing partner have a great relationship when compared to the relationship between a buyer and a seller.In outsourcing, the outsourcer trusts the outsourcing partner with vital information. Outsourcing is no longer confined to the outsourcing of IT services. United States outsourcers now outsource financial services, engineering services, creative services, data entry services and much more. Organizations are realizing that outsourcing can lead the business as an effective business strategy towards achieve high targets.
2.3 WHY COMPANIES OUTSOURCE?:
Outsourcing process is valuable to both the outsourcing company and the vendor which provides outsourcing services. In an outsourcing relationship, the vendors enable the outsourcer to reduce operating costs, increase quality of business, put less time and money and get an increment in output.
Reasons behind outsourcing are below:
2.3.1 Cost cutting:
According toM. Purwar (2010, pp-5) Cost controlling is done by avoiding capital outflow associated with purchase of new and upgrade current systems. These savings can be done in infrastructure, operational cost and other core areas of company. Every single U.S dollar invested in Indian BPO industry can return output of equal 10-13 U.S dollar. Vast pool of skilled employees is ready to work for fewer wages. Call centres salaries are drastically less than western countries wages.
2.3.2 Improve efficiency:
Rick.L (2006, pp- 21-23) explained that most of managers spend 80% of their time to manage the processes and sort out things while 20% use for strategy developing. But in outsourcing the situation is quite different. Through outsourcing saved time spend in developing strategies, generate revenue, advertising marketing campaign and focus on customer satisfaction. Business process outsourcing enhances the abilities of employees and increase company efficiency. Such companies are able to arrest new efficiencies and improve processes. Save employees and skilled manpower could use to relocate other projects to increase productivity.
2.3.2 Expertise of Outsourced Units:
Because of core functions of outsource company can save from harass of arrange training programs and recruiting expertise. BPOs provide expert’s opinion and skills at low rate compared to U.S and western companies. The companies who want create brand equity often invest in infrastructure and hunt talent throughout the world. Many outsourcing companies are already facilitating companies in terms of improved efficiencies.
2.3.3 Focus on core competencies:
The growing competition among big giants of business world dictates that a successful company must have to maintain competitive edge to win the race. They should have immense process for keeping an eye on core competencies of company. Any company can get better performance of core non functions through outsourcing. Big companies cannot afford to spend valuable time on non-core procedures and transactions which can be handled by outside specialists. Through outsourcing companies can save time and spend that on increase revenues, develop product line and gain customer confidence. Business
process outsourcing can give the privilege to the company to focus on core competencies. Because BPO takes the responsibility to back office day to day routine activities.
2.4 ADVANTAGES OF OUTSOURCING:
In Eltschinger,Cyrill (2007, pp-2-3) opinion BPO enables you to redefine your business priorities, take on and perform better skills, cost effectiveness and get better result. Below are some advantages of BPO:
- Outsourcing enables the increased efficiency of non-core functions of business process.
- It becomes organization more flexible.
- Outsourcing helps to rationalize business processes.
- Due to offshore outsourcing organization can save time, money, manpower and training cost.
- Because of deleting some functions to external sources, organization can more concentrate internal business processes.
- Outsourcing enables the organization to reduce operational cost.
- The most beneficial part is that organization save money with respect infrastructure.
- Business risks may share with use of outsourcing.
2.5 DISADVANTAGES OF OUTSOURCING:
The disadvantages of outsourcing are less than advantages of outsourcing but should consider before jump in this industry.
- Sometimes after outsourcing, company find it difficult to manage the offshore provider as compared to manage within the company.
- The employees of organization can show lack of interest and produce low quality work.
- There could be few disadvantages regarding contracts like to renew the contract, misunderstanding of contract and breech of contract.
- In some scenarios, it is more cost effective to conduct a business process within the company rather than outsource it.
- Company security and confidential documents can be in danger by outsourcing the services like payroll and tax preparation.
Large savings in labour cost.
Additional maintenance and infrastructure cost due to the offshore country.
Unemployment in outsourcing country.
Time zone differences
Reduced turnaround time.
On time delivery.
24/7 customer support.
Social issues faced by the workforce because of monotonous and odd hours work.
Working culture difference
Offshore locations potential.
Both parties’ communication issues due to difference of languages and cultural norms.
Table: Advantages and disadvantages of Offshore
2.6 REASONS BEHIND JOINING BUSINESS PROCESS OUTSOURCING (BPO):
According to M. Purwar (2010, pp-35), BPO is a very fast and growing industry which is attracting youngsters in India and growing at a rate of 40-50% rate since it started in India. In the previous few years there is high makeover in municipal youth and rapid changes the environment they live in. The remarkable growth of call centres in India is shown high graph of socioeconomic and cultural developments. Youngsters of India are ranging from their lifestyle, career, personality and language of the whole culture. No doubt this changing personality growth is leading towards their faster financial goals. They are moving towards their career milestones and attaining goals. Such attitudes compel them to join BPO industry. More reasons are listed below:
- Higher education is not required to join BPO, so after 12th can join BPO and start earning.
- Financial independence is an important reason to join BPO. Workers has gateway to better salary packages.
- There is no need for specific and huge amount of investment unlike other professions.
- Who wants to enhance their communication skills, its best opportunity for them. Especially young students need to take over their communication drawbacks.
- When someone is looking for good professional job, is not successful so in this meanwhile can adopt this culture.
- Employees having better working environment, truly international level of standard.
- Attractive lifestyle can attain through BPO industry earning.
- No technical education and skills are required for this field, so less age fellows can also start this job.
Indian Government cannot deny this factor that BPO industry is beneficial for Indian youth and thousands of people has got the job due to this. Industry sustained so many people.
2.7 CHALLENGES FACED BY BUSINESS PROCESS OUTSOURCING (BPO) COMPANIES:
- People working in BPO assume that such jobs do only require little skills. Basic education and good interpersonal skills enables people to join BPO sector. They think high qualification and solid experience is not required for such positions. BPO companies normally hire middle age people. There is no sense of achievement among the employees.
- Selection of the right service provider is also considerable. When any company look for a BPO service provider, they should mind three key points: a verified track record, technical abilities and how BPO Company adds value to the task to be done.
- Workers are being demotivated due to high expectations of outsourcing companies. In fact in such companies employers only think about achieve their deadlines. Employers only concentrate on time delivery of work, information security, getting more clients. But still their satisfaction is quite possible in case the expectations are realistic, working environment is according to that region, employees are getting motivation and good company ethics.
- According to article ‘Challenges of BPO Industry (2009)’ that knowledge management is important element of the Indian BPO industry that is in front of challenges. Here the question arises that how such challenges cultivate in BPO companies? These challenges arise when required development procedures not being followed by BPO industry. When BPO companies do not offer new training according to changing trends and become stagnant, it is another big challenge.
- Lack of communication among employees in a different department may lead towards frustration, which often creates hurdle in the way of better production. Without following the proper chain of command, the actual requirement of supplier companies cannot be fulfilled.
- Motivation is another challenge for BPO industry companies. Employees need continues motivation. When Indian BPO companies would leave to motivate their employees they cannot sustain at top in the BPO industry. Moreover, Company higher authorities should share the goals and vision with employees. Through this employee put best input to the company procedures. It is necessary to stay in this business for a long period of time.
- Largest worry about BPO industry is attrition. According to analysts attrition rate of Indian BPO industry is about 30%. If the companies will not stop it seriously, they could face deficiency of professionals at high rate. According to the National Association of Software and Services Companies (NASSCOM), report the outsourcing industry could face a deficiency of 262,000 professionals by 2012.
- By using outsourcing many companies can lose their control because it is not easy to manage outsource activities. Employees of company lose their interest in work and trust on executives of company. Security of contracts and some confidential information sharing can create a huge problem for company management.
2.8 INDIAN BPO INDUSTRY:
The past five years have seen a big bang in the Indian Business process outsourcing (BPO) industry as almost every American Company has its BPO set in India. Large companies of US are having savings by being a part of this industry. BPO as we know are the Business Process Outsourcing units which function by collecting the data provided by the company’s US headquarters, analysing them and sending out the processed output back to the headquarters or to the desired venue as directed by the company. Now, BPO industry tops the list of the profitable sectors in Indian economy.
According to India Business directory (2009) the BPO sectors demands are increasing from western countries, multiple reasons like due to the availability of cost-effective labour in India, who are highly skilled and also they are good in English speaking. India’s telecommunication sector gave a lofty boom of BPO industry in 1994. There was 14% registered a growth rate of BPO sector in India during the first 6 months of 2007. During the last five years the growth rate of BPO industry of India was low because of less investment from outside countries, whereas now BPO industry is viewing some optimistic signs with investments from western countries. Mr. Som Mittal, President, NASSCOM (2011)said that Indian IT-BPO industry grew by 19% to reach USD 76 billion in 2011. A strong grow is seen in the domestic market of 16 percent having Rs.789 billion revenues. Direct employment graph is also high and satisfactory which is expected to reach nearly 2.54 million, along with the addition of 240,000 employees. According to the same source, 54% growth rate of Indian ITES-BPO recorded during 2003-2006. During the same time period Indian BPO sector created job opportunities for around 74,450 additional personnel. By the year 2009, the ITES- BPO of Indian sector employed around 1.15 million people, along with an expected sale of US$21 to US$24 dollars. (http://indiacurrentaffairs.org/it-bpo-industry-strong-growth-with-focus-on-transformation-and-enhanced-value-proposition/)
Questions may raise that why India has been chosen by so many companies to open their outsourcing units. There are many reasons for choosing India. Some of significant factors are tech savvy professionals, cost effectiveness, better competencies; improve business risk management, 24 hours customer support and economies of scale.
FE bureaus (2009) explains in his article that the BPO sector in India has been the fastest growing sector, having a growth rate at a compounded annual for over 37% to aggregate revenues of US$14.8 billion in financial year 2009 of US$1.6 billion in financial year 2002. There is huge increment indirect employment for this period from 155,000 to almost 1 million people. It shows India as fastest growing sector.
Thus, India has maintained its top position in the global outsourcing market. Whereas it is the time of “cautious optimism,” the outsourcing industry is a need to sustain its expansion for 2years because its export target is 60 billion USD for FY2012. Whistle all stakeholders are needed to put efforts to deal with the present challenges.
2.9 SWOT ANALYSIS OF INDIAN BUSINESS PROCESS OUTSOURCING (BPO) INDUSTRY:
- Skilled, English language benefit workforce.
- Affluent talent pool.
- Well developed IT industry.
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