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Business Process Outsourcing (BPO) From USA to India

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Any opinions, findings, conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of UK Essays.

CHAPTER NO.1: INTRODUCTION

1.0 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.

1.8 METHODOLOGY:

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

2.0 INTRODUCTION:

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.

Factor

Advantage

Disadvantage

Cost arbitrage

Large savings in labour cost.

Additional maintenance and infrastructure cost due to the offshore country.

Unemployment in outsourcing country.

Political risks.

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

Global perspective.

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:

2.9.1 Strengths:

  • Skilled, English language benefit workforce.
  • Affluent talent pool.
  • Well developed IT industry.
  • Cheaper manpower than U.S. According to NASSCOM, The wage difference is as high as 70-80 percent when compared to their Western counterparts.
  • Lower attrition rates than in the West.
  • Strong profile of well know companies.
  • Enthusiastic manpower that is serious about making a long-term career in the field.
  • Round-the-clock advantage for Western companies due to the huge time difference.
  • Powerful venture capital interest.
  • Lower response time with efficient and effective service.
  • Adoptive business environment by Indian Youth employees.

2.9.2 Weaknesses:

  • Recently have seen low level of attrition rates among ITES workers who are quitting their jobs to pursue higher studies.
  • The cost of telecom and network infrastructure is much higher in India than in the US.
  • Lack of customer service culture
  • Political opposition from developed countries
  • Failure to retain top talent

No brand equity and proper advertisement

2.9.3 Opportunities:

  • Time zone difference between India other outsourced countries
  • India can be recognized as a quality ITES objective rather than a low-cost opportunist
  • Expected US$71 billion ITES businesses by 2011
  • India can put efforts for improvement of IT infrastructure, its application and maintenance. Multi-year contracts have become this sector valuable. (http://www.outsource2india.com/trends/future_outsourcing.asp)
  • Indian Government should close to western authorities and reduce political pressure

2.9.4 Threats:

  • Increasing technology automation
  • Political instability
  • India's competitors offering cheap services
  • More billing rates than competitors
  • Slowdown in demand
  • British workers of Telecom protested against Indian BPO telecom sector

2.10 DRIVING FACTORS OF INDIAN BUSINESS PROCESS OUTSOURCING (BPO) INDUSTRY:

Manaswi Purwar (2010, pp-5) explains in his study about the BPO industry that in the last decade, the growth rate of IT industry and BPO has gradually increased. Indian BPO industry has a major part in the growth of these sectors; country captured around 60% of total IT industry in off shoring and 45% of all BPO industries.

The BPO industry is currently growing throughout the world due to the benefits that it offers. According to statistics India will be at the top of BPO industry in coming years given the variety of advantages that have made it fundamental power of this industry. Being a fair analyser, researcher gathered information that call centres have become an addiction for youngsters for nation; it is hard to find any city without call centres. So these call centres are contributing a high share in Indian BPO industry revenue. They are providing 70% of BPO industry which is a healthy growing graph. Around 18% are coming from high level side and 9% through higher value information work.

CurrentlyIndia is leading the BPO industry with high market share. There are many factors that lead India towards the top position. Some of the main reasons are:

2.10.1 Low manpower cost:

One of the main advantages of Indian BPO industry is lower cost manpower as compared to western countries. India has a talented labour pool. Moreover, 1.3 million graduates and .2 million post graduates are getting degrees from non engineering institutes. These figures show the skilled availability of human resource in India. This country is not only rich in terms of educated human resource but having the international level of work against strict timelines. Whereas countries like China and the Philippines are jumping into the race, India has to maintain this advantage. These countries offer low manpower costs and sometimes offer very low prices.

2.10.2 Align IT strategy with business goals:

Indian BPO industry is growing rapidly in IT sector. IBM Daksh is dealing in call centers services of India. Strategy is stage where is the business trying to get to in the long-term and try to meet environmental challenges; any outsourcing company can successfully only if its IT strategy would align with business goals of outsourced Western organization. Outsourcing company needs to maintain the source company product standard. Indian outsourcing business units use to align IT business goals with vision.

2.10.3 Infrastructure:

IT/BPO field of India has achieved fabulous success because of the country's better infrastructure. In the last few years Indian BPO industry has grown in telecom, roads and power sectors. According to FE bureaus (2009), due to changes and increased business there is a need for updated infrastructure. Whereas the Indian BPO industry is not having any long term plans for the improvement of infrastructure. Other competitors of India are emphasized to develop a strategic roadmap about future infrastructure. There is a need to develop highways for reduced operational costs. Because poor infrastructure adds to business cost and firms need to cut down the cost to maintain edge in the BPO market internationally.

2.10.4 Time zone Difference:

India has one major advantage over other competitors is 8-12 hour difference with respect to

U.S and other western countries. Due to this, can offer less turnaround time even doing work at night hours. India offers services around the clock. This advantage is GOD gifted for India because of exceptional geographical location. This time difference is beneficial for call centres.

2.11 INDIA IN COMPETITION WITH OTHER COUNTRIES:

According toMike (2009),from the last two decades many industries are serving in BPO, which includes IT, insurance, finance, engineering, hospitality and more. Companies involve third party to get more expertise in required fields. Many US companies preferred Asian countries to outsource their projects. By 2012 they are expected to show significant increase in annual rate. Through outsourcing companies lower cost of operation and due to advanced infrastructure, outsourcing has become easier to carry out.

When compared to the western countries, India has always offered a much lower cost of manpower as well as an abundance of it. Even for the other resources like land and low setup cost and lower investment risk companies have chosen India for various businesses. The BPO industry was a chance that most of the companies took in India as a small part of their companies. In a few years time, the small BPO offices flourished into big BPO giants and now function independently and give a turnover of more than 1000 million USD. In 2008 the total offshore BPO market was USD 36 billion, whose 35% market share was carried by leading India. Because of several advantages India has been able to maintain its top notch over its competing countries like China, Philippines, Mexico, Canada and Malaysia.

Lately, Philippines have proved to be a good rival of India in the BPO industry because of its educated English speaking workforce, familiarity with American work culture and knowledge of Spanish language but India's huge human resource is not an easy reach for the Philippines. In voice-based (2010) said that the India is still the leader in BPO Industry with overall revenue of US$70bn, while Philippines BPO revenue is US$9bn annually. The operating cost (Salaries, training etc.) is also cheaper. Taking this into consideration, IBM Daksh has opened its BPO in Philippines and now it is one of the top BPOs in the Philippines.

In an article about Chinese BPO industry, writer describes China as a rival and a largest threat to Indian BPO industry. China has two advantages over the India; the largest population and fastest economic growth with better infrastructure. The weakest areas of China are lacking in software development, while India provides better quality. Chinese BPO is expected to grow 26% by 2012. They will employ thousand of employees. Another advantage over India is their low cost manpower. Chinese have an obvious limitation i.e. they do not have as many English speaking graduates as India has. Also, the political conditions are not suitable enough for any company to open their businesses in China as they are not flexible with their market offerings for international companies. So, it has never been a strong rival for India. (http://www.offshoringtimes.com/Pages/2007/BPO_news1621.html)

In recent times Mexico has proved as a dangerous competitor for India. They are serving well in low-end jobs due to their lack of unskilled workers in technological fields. Mexico keeps high manpower cost as compares to India and has swamped talent pool. Mexico lacks in mathematical skills, which is a low point.

South Africa could become a hot competitor in India BPO industry, because of time zone compatibility with Europe. Capable infrastructure is available for prospective investors in the fields of power, telecom and communications. They have 17 million physically powerful labour pools. They are lacking in skilled manpower whereas the costs are 20% less then Europe. IT outsourcing in South Africa is growing along with the diversity of the local market. This industry is looking for new inventions to get a competitive edge. A favourable exchange rate is plus point for this market to compete with India. The government of South Africa has supported policies in the BPO industry and having English base education system are points, which make this land a good opportunity for the BPO industry. In 2007, a government-backed BPO support programme announced, it had budgeted R1.1-billion in investment purposes to improve South Africa's BPO industry growth. (http://www.southafrica.info/business/investing/opportunities/bpo-overview.htm)

Ireland and Canada are those who also capable of setting up BPO industries in their countries M. Purwar (2010, pp-30). These two countries have the advantage of the similarity in culture and terms of people in Europe. They are also good economic and infrastructure condition. Ireland has a less labour pool of just 1.8 million where as professionals are expensive. They are having expense US$23,000 while US$2,500-5,500 in India per year. Real estate prices are low as compared to US, but still higher compared to India. Canadian villages are also appropriate for 200-400 people operations.

Russian outsourcing provides cost effective quality services for that clients hire Russian resources. That's why its market is going to be billion dollars markets. Companies know that a vibrant market is growing in Russia. In light of these facts

Russia could have been considered as a capable rival of India for the BPO industry but was

out-ruled long back because of its poor infrastructure and resources to set up the industry and its English illiterate man power.

Thus, till today India is maintaining its top position in this sector but it has to be careful so as to improve its quality workforce as it has some rival countries who can with some effort take over India's BPO market. Therefore, India should be always on alert as it is now in its grip over the BPO industry. If India has to maintain its supremacy in BPO and its software workforce, then BPO India has to learn Spanish, which is spoken in more than 24 countries and some companies have already started training their Indian employees Spanish and are even encouraging the foreign language courses in several colleges and universities. If India is able to produce proficient Spanish speaking candidates like it has the English proficient candidates, there would be no turning back to India in this BPO market and it will remain the crown of the world's BPO industry.

2.12 IBM (INTERNATIONAL BUSINESS MACHINES):

IBM also known as the International Business Machines headquartered in Armouk, USA was founded in the 1880s. IBM is the world's largest computer companies and systems integrators, with over 388,000 employees worldwide. IBM is one of the largest and money-spinning information technology organizations in the world. IBM has eight research laboratories throughout the world. IBM had a very sharp increase in its infrastructure in the early years, from 1925 to 1950 the gross income of the company made a huge leap from US$13 million to US$266 million. This is drastic increment. It employs scientists, engineers, consultants and sales professionals from around the world and is stationed in over 170 countries across the globe employing more than 450,000 employees. The company mainly deals in manufacturing and sales of hardware and software but also provides a range of services for Aerospace, Automotive, Banking, Chemicals and Petroleum, Retail and Telecommunications and many more. (http://business.mapsofindia.com/bpo-services-india/ibm-daksh.html)

According to the article about Indian industry, IBM acquires DaksheServices (2004) that IBM has acquired DaksheServices that is India's third largest BPO Company. The IBM Daksh is providing call centre services to more than 15 clients including Amazon, Citimortgage and Sprint. IBM Dakshwas started in 2004 with a total strength of 6000 employees who now has the strength of more than 25,000 employees all over India. The offices of this BPO are stationed in all the major cities now namely Chennai, Bangalore, Hyderabad, Kolkata and Delhi. The BPO has been opened in India keeping the following in mind:

  • Cost cutting.
  • Innovative business process services to valuable clients.
  • Improve operational efficiency.
  • Take advantage on global economy.

Less work load on the US offices

In article (2009), explained that according to financial results of India's outsourcing giant WiPro (WIP), India's stock traded for US$14 before one year. In recent times it was about US$5. So in the opinion of Wall St. circumstances of the firm will get further worse. Few others big outsourcing plans BPO's in India will also do poorly. (http://www.time.com/time/business/article/0,8599,1887779,00.html#ixzz1JyP2z0Lp)

Whilst manpower cost drop in the U.S., they are most likely reducing quicker in China and India. Bureaucrat rate of unemployment in India is 8.2%, but analysts are foreseeing its poor ratio throughout the year. India has to make a decision about adjustment of thousands employees which announced in U.S. IBM was looking for lower cost manpower.

Because of growing revenue and employees strength IBM decided to announce it an independent outsourcing unit and it is known as IBM Daksh Global Services globally. IBM chooses India for Daksh outsourcing unit because of lower manpower cost. IBM Daksh is generating the maximum revenues for IBM and is given much more than what the CEO of IBM had expected and turns at more than US$600 million of sales revenue per year.

IBM Daksh deals in latest information technology, and to provide best services. IBM Daksh India has developed explicit software tools. Outstanding improvements and significant performance is provided by these softwares in the BPO industry. These software tools have improved the performance of outsourcing firms in growing economies.

2.13 WHY IBM HAS CHOSEN INDIA FOR ITS BPO IBM DAKSH?:

M. Purwar (2010, pp-4-6) explained that BPO provides efficient services at reasonable costs. They majorly focus on timely operations, less cost of infrastructure and end to end management. Another powerful benefit of BPO is that they spread organization's network outside the country effectively. In the same perspective India has many attractive aspects for US companies so they open their offices and even start new business ventures. Low tariff rules are another big reason for choosing India as BPO by IBM.

Mascarenhas (2010) said that IBM is quite confident regarding the growth prospect of the services sector in the domestic economy. They offer a wide range of services from software- related services to cover HR aspects of companies, so they plan to hire 5,000 employees in IBM Daksh.

There are several reasons to choose India but some of core reasons are discussed below:

2.13.1 Cost- effectiveness:

M. Purwar (2010, pp-19) explains that cost effectiveness is a big reason to choose India BPO industry for IBM Daksh. In India, people are willing to work at very low wages whereas wages are four times higher in the USA as compared to India. If the wages of manpower would be much less for the company, they hire more manpower in same resources that enhances the capability of organization. In IT sector of India, employees offer tech support, troubleshooting at very low prices.

2.13.2 Effective HR Practices:

According to Rajeev, Meenakshi (2009) one of best practice that is fundamental for BPO success in India is good HR and high quality control norms. The best practices that are fundamental for the success of BPOfirms in India as perceived by the respondents are good HR practices and strict adherence to quality control norms. Given the coaching and training is involved in outsourcing jobs, the training and development rate is generally quite high. Therefore, to retain the well trained employees become vital for survival of companies.Due to these factors, the majority of the companies need to maintain best HR practices as this is the most critical component. Whereas 58% firms keep maintain quality assurance norms. Although their effect multiple factors for best HR practices.

India BPO industry's HR is healthy by maintaining good quality client relations; normally, when any company firewood to quality norms then can preserve the best employees, the rest HR practices are automatically secure.

2.13.3 English Speaking Manpower:

India produces the largest number of graduates every year and they must know how to understand and speak the English language. Also, nearly 85% of Indian education system considers English as the first language and higher education is given mostly in English making nearly 90% of Indian fluent and well versed in English and thus adding one more advantage to the outsourcing sector. Other countries like China have more skilled employees but they do not have knowledge of English. IBM took interviews with many BPO employees and wanted to hire more than 80% of computer literates whistle remaining are undergoing training. Every BPO after recruitment, trains its employees with the process which they will be in. IBM is a USA based Company so they in truth were need of manpower who knows the English language. India's BPO industry fulfils this requirement in a sufficient way. Manpower of India is also being informed about the culture of western society and manners. Mike (2009) explained that the India is in the process of making huge commitments in providing its people, for their basic right of full education including females.

2.13.4 Indian Market:

IBM has utilized Indian BPO market intelligently. Indian market has its own manufacturing and consumer market that is beneficial for IBM Daksh. IBM is approaching several Indian companies to enlarge its extraction into the Indian economy and is progressing very fast.

2.13.5 Skilled Manpower Availability:

It would be interesting to know that India has the world's second largest population of engineers and the third largest population of scientists and researchers and unfortunately India's job market is very small compared to its giant manpower. It has lead to growth to the main developments in IT, business process outsourcing. So, skilled labour is readily available to the MNCs at a very cheap rate and due to the unavailability of desired employment, candidates tend to put forth less salary expectations themselves. This definitely offers a good nest for IBM which has already spread its wings all over the planet.

2.13.6 Low Set-up Cost and more Real Estate Options:

Also, opening offices in Indian cities need much less investment when compared to the costs in the USA. This is yet another reason why IBM has opened its offices in so many cities across India. As the real estate costs are shooting up rapidly in the Tier-I cities, IBM is turning its attention toward the Tier-II cities like Nasik, Sangli, Mangalore, Mysore etc.

2.13.7 Government Policies:

Indian Government is well aware with their technical potential. M. Purwar (2010, pp-21-22) explains that IT is top priority of government and maximum relax policies has announced for the betterment of BPO industry in India. Some of favourable government policies are described below:

  1. NASSCOM is most prominent advocator of the IT/BPO industry in India. It has played a vital role in promoting the IT industry to achieve the IT vision. It derived India to attain a top position in BPO sector globally.
  2. Government of India has reduced licensing requirements, due to these foreign investments become accessible. The reforms have also removed restrictions on investment and made the process of investment easier. This has tremendously helped the IT/BPO industries. (http://www.indobase.com/bpo/why-india/govt-policy.html)
  3. M. Purwar (2010, pp-21) said that IT Act is another great effort of Indian government for BPO sector growth. The legal framework of IT Bill was passed in 2000. It provides a legal authentication of contacts done through internet. Through these employers can prevent computer crimes, electronic conversations and exchange of documents.
  4. M. Purwar (2010, pp-22) Indian government has recognized the importance of Venture Capital Funding, than the Ministry of Information Technology has put a national Venture Fund for the Software and IT Industry with a corpus of Rs.100 cores. It provides Venture Capital to encourage and establish software professionals and relatively small IT units.

2.13.8 Flexibility and Adaptability of Manpower:

The Indian work environment is very flexible and adapts easily to any change implemented. Working employees of BPO industry mostly lye between age group of between 24-35 years. Western working culture is very welcoming by the youngsters and has shown more work efficiency by adapting it. Moreover it provides a reliable platform for the US Company to commence its several projects and has made a healthy growth rate of 9% of its revenue. In fact the culture of BPO is friendliness and having professionalism. And employees always put more efforts in friendly and trustworthy working environment.

2.13.9 Emphasis on Quality Service:

IBM BPO is investing a good amount of its revenue to train and give higher education to its staff and has collaboration with many Indian Universities and colleges for this purpose. The Indian employees have supported and encouraged the company for this new training system. Now, the company has already started to reap the fruit of its strategy as it gets better, efficient and trained executives who are already familiar with the company's projects.

2.13.10 Less Work Load for US offices:

Opening BPOs around India has enabled IBM to work even in areas which are outside its expertise and has helped to reduce the company's expenditure and effort in understanding somebody else's expertise and then implementing them in itself. Thus, the US offices do not have to spend time to learn or handle issues related outsourcing and can engage themselves in other operations which are resulting in higher productivity and efficiency.

2.13.11 24 Hour Service:

One of the most important reasons to choose India's BPO industry is their 24 hours working manpower. They work for seven days of the week with the same efficiency. Such additional points are not possible in USA units of IBM. In other words, 24 hours functioning adds to the efficiency of the India based BPOs. IBM takes advantage of time zone difference and get tasks done 24 hours of day. Indian call centres can provide services when there is off after 5pm in US. So their customers get 24 hours customer service at less cost.

2.13.12 Lower Business Risk:

Due to the low set up cost and flexibility of Indian markets, the business risk is the minimum when compared to doing business in any other country in the world.

All these factors have proved it beneficial for IBM to transfer its BPO unit to India and IBM Daksh has been successful in employing the potential human resource of India and establishing a randomly growing BPO with a socio-technical nature with India's investor friendly economy.

Indian BPOs are not much affected by the recession of 2008-2009 due to strong IT services and skilled manpower along with low cost infrastructure. Paranjpe, India Bureau (2010) explains that here is lot confusion in the southern edge of Europe because of the current recession, whereas the traditional Indian IT has not been affected in a bad manner.

2.14 IMPACTS OF BPO ON INDIA:

Rajeev, Meenakshi (2009) has written in paper that due to the development and enhancement of information technology (IT), method of service delivery has changed thoroughly. IT has become this procedure very fast and reliable. As a result, IT related services had played a significant role inthe Indian economy. This technological revolution is the basic reason for the business process outsourcing industry.

2.14.1 Impact on economy:

According to recent statics mentioned in States News Services (2011)the Information technology Outsourcing industry is considered to be India's flourishing industry. This sector has played a significant impact onthe country's economy, transformed from a comparatively slow growing economy to a fast-growth economy.

During the period of five years (2003-2008) the employment in IT sector of India increased from 180,000 to 703,000, which was expected to increase around 1.45 million by the end of 2010. (http://business.mapsofindia.com/bpo-services-india/growth.html)

Another significant achievement of IT sector is that; it occupied the 6% of India's GDP, it is a drastic increment from 1.2% which is just achieved in a period of last 10 years, according to a recently concluded study by industry body NASSCOM.

According to NASSCOM, by 2020 10% of India's GDP will be account of this sector and 14% total revenues from all service sectors. Its unique service-led sector that contributed the 9% of country growing GDP.

M. Purwar (2010, pp-46-47) explained that IT-BPO sector contribution has overcome the agriculture sector as well. Its per capita GDP contribution is 80 times more than agriculture. This Indian BPO industry sector is growing two times more than overall total exports of past decade.

BPO Role in India's economic growth is set strategically towards making a momentous role in coming time as well. Foreign investment played a significant role in India's economic growth. One of the driving forces that participated to boost up the foreign investments in Indian BPO industry is the providence of high quality services. It compelled the U.S to invest in Indian BPO industry. Another reason is skilled and low cost workers. IBM Daksh can provide quality products to U.S clients even staying in India because her employees are working effectively to make the progress of company.

Nevertheless, if take a look IT-BPO sector in broader political economy of country, it comes up with infuriating the problems as well. From 1983- 2005 the agriculture share in GDP significantly reduced to a difference of 16%. During the same period IT-BPO increased share from 38% to 53% but the employment ratio was noticeable reduced. This Indian style capitalist development is leading towards a poverty and hunger and frustration towards unemployed class. It could lead towards job-less manpower increment.

Still the growth rate of Indian GDP of period 1997-98 is US$ 4.8 billion, for 2006-07 is US$ 47.8 billion along with Current rate of growth: 28%.

Also, the opening of new BPOs is bringing more job opportunities for the new generation. An example of which is already shown by IBM Daksh which has promised to employ another 25,000 employee for its India offices. (http://www.time.com/time/business/article/0,8599,1887779,00.html#ixzz1JyP2z0Lp)

2.14.2 Impact on the Education system:

A well-known NASSCOM-McKinsey study provided a statistical data about India BPO industry that only a quarter of technical graduates and only 10-15% of general college graduatesare suitable for employment in the offshore IT and BPO industries.To overcome this deficiency, the large IT and BPO firms have decided to offer training programs for their employees.

IBM Daksh is a big giant of BPO industry. They need educated and English language is knowing employees, that's why they are collaborating with the Indian Government in terms of revenue to educate and apply the strategy for the betterment of their education system. The Indian Government has supported their plans and strategies to expand the country's education system. To promote the English as an international language, recently renowned colleges and Universities of India has allocated extra credits for foreign languages. That would also help to understand the handling of international processes. Moreover, the Indian education system emphasises on science and mathematics thus producing many capable graduates. These graduates are capable to fulfil the requirement of international outsourcing units.

Mike (2009) explained in his article that Indian Higher Education has facilitated to specialize in a specific field and get trained from technical Schools. They are also trying to raise graph of attendance in vocational high schools. According to careful estimation during 2008, over a million students completed vocational training through the Training Schemes. A handsome share of profits is also investing in higher commission education by IBM Daksh. Due to this investment number of seats are increasing for capable knowledge seekers.

IBM Daksh is also covering many areas other than educational sectors. IBM Daksh is helping many government and non-government bodies for the development of rural areas, to help deprived children.

2.14.3 Impact on Culture and Lifestyle:

In M. S. Balaji opinion the incredible increase in call centres industry of India has brought about a noteworthy alter in the socioeconomic culture and great change in the youth of Indian. There is no difference of opinion that outsourcing will grow in India. Many of Indian companies and employees are trying to adjust with changing trends to get profits. Analysts called this phenomenon as "BPO culture". There are both positive and negative impacts of BPO culture of the Indian youth. Their personalities, lifestyles, career and living is also affected through BPO culture.

BPO industry has changed peoples life style in a positive manner as well. The workers in this sector can afford a middle class family. Mostly employees are from the age group of 26-30 years who are very adaptive and excited towards western lifestyle and organizational culture. Youngsters move towards smoking and drinking because of the stressful environment of BPO units. They have to deliver work on time and time zone difference they become restless.

Swati Mahaseth (2010) tried to explain the after effects of BPO sector in India. Indian women are seeing attracted towards smoking. The rate is quite high. It is really shocking for India where female smoking is prohibited by society values. Whistle recent study shows women are smoking to kill stress, monotonous lifestyle. The majority of these women are from the BPO industry.

Another key problem in this industry is the high levels variation in labour rates. The labour attrition rates in the outsourcing industry vary between 20-40 percent. Nonspecific rules of companies, restlessness, time zone difference, mental and physical stress, non-beneficial policies are a few reasons.

2.14.4 Development of rural areas:

Most of the BPOs are shifting its attention towards rural India which has led to development and awareness. Some BPO companies have set up operations in smaller towns and villages because there is low cost of operations and lower employee attrition levels are the few major benefits that companies derive from their rural operations. IBM Daksh has turned its attention from the Tier 1 cities to the tier 2 and 3 cities do their low costing and greater avail


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