What Are IT Enabled Services Commerce Essay

Published: Last Edited:

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

IT enabled Services is believed to be revolutionary IT offshoot which looks after all outsourcing needs including, Customer Relationship Management (CRM), Back Office Operations/Revenue Accounting/ Data Entry, Data Conversion including Finance & Accounting/HR Services, Transcription/Translation Services, Content Development/ Animation, Other Services including Remote Education, Data Search Market Research, Network Management & Consultancy Services etc.

The ITES/BPO industry has performed splendidly well over the past decade with a compound annual growth rate exceeding 50%. The triggers for this are availability of high quality skilled/semi skilled labour, low cost base and incremental advantages accruing from the learning curve happen to be the critical success factors. In addition, the conducive tax environment in the form of tax holiday benefits given to the industry under the Software Technology Park of India (STPI) and the Export Oriented Unit (EOU) schemes have also acted as a catalyst to the growth.

BPO is witnessing an increasing emphasis on the cost-plus, additional strategic levers that it can deliver include innovation through business process re-engineering of the underlying business process being outsourced, improved competitive positioning (internally and externally), managing customer expectations, elevation of the strategic role of the retained organization, optimal resource allocation, support for globalization of their businesses, and technology support and access. This has also heightened attention resulting in enterprise-wide evaluation of BPO opportunities which is in turn opening new avenues to explore. This steady expansion in scope coupled with low penetration levels is supporting high growth for BPO.

Size and structure of the IT-BPO industry [1] 

According to NASSCOM, domestic BPO segment is expected to have the fastest growth of about 40 percent to reach USD 1.9 billion in FY2009. The total employee base stood at 700,000 in FY2008 which is estimated to be 789,806 in FY2009. ITES/BPO exports grew from USD8.4 billion in FY2007 to USD 10.9 billion in FY2008 and are estimated to grow by 17.5 percent to USD 12.8 billion in FY2009 [2] .

The size of BPO contracts has increased to between USD 5 million and USD 50 million from less than a million dollars. As a proportion of national GDP, the overall IT/ITES sector revenues have grown from 1.2 per cent in FY1998 to an estimated 5.8 per cent in FY2009.

The BFSI (Banking, Financial Services and Insurance) sector's share of the overall pie of services offered by ITES-BPO companies dropped to 28 percent in FY2008 from 31 percent in FY2007. On the other hand, verticals like aerospace, government & defense and services & logistics increased their share [3] .

The expansion in the scope of BPO has been accomplished by an equally adaptive range of vertical industries being catered to. Large service providers are responding to customer demands for a more extensive service portfolio by expanding into related areas of Finance and Accounting services, HR outsourcing, etc. Additionally, large IT services firms are leveraging their existing client relationships as well as expertise in IT outsourcing and other areas of business services outsourcing, such as Finance and Accounting, insurance, healthcare, and payment services, etc., to expand their capabilities in the customer care segment. Outsourcing firms offering conventional BPO services have now started offering higher value added services like KPO and LPO services.

Key Points of Indian ITES-BPO Industry [4] 

Strong fundamentals: India's fundamental advantages of abundant talent and lower comparable cost structures are believed to be sustainable over the long term. With a young demographic profile, where over 3.5 million English speaking graduates and postgraduates are added annually to the talent base, no other country offers a similar mix and scale of human resources. Additional productivity improvements and the development of tier 2/3 cities as future delivery centers, is expected to enhance India's cost competitiveness, along with the fact that Indian IT-BPO companies have put in place world-class security standards, to ensure high levels of quality and service delivery. Indian companies are able to provide a combination of onsite and offshore services on a 24-hour basis thus taking advantage of time zone differences.

Robust enabling environment: Timely government policies and increased public-private participation have played a key role in developing an enabling business environment for the Indian ITES/BPO industry.

Enhanced value delivery capability: The clients are looking at the country's service providers as transformation partners, innovating and developing customized solutions to address their needs more than just cost savings.

Global BPO Market

Most companies and governments around the world view sourcing as a global activity. The key aim of sourcing is to achieve business objectives. Thus, sourcing strategically identifies whether operations and processes should be offshore, near-shore or on-site. As the IT/ITES sector continues to grow in size, many large organizations have already made sourcing a core part of their business strategy.

The world business process outsourcing market is projected to reach about USD 975 billion by 2012 with a CAGR of 12 percent. The US represents the largest BPO market worldwide with a market share estimated at 53 percent in 2008. While Asia Pacific is expected to maintain a CAGR of 20 percent over the years 2008-2012 constituting the fastest growing market [5] .

Indian BPO Segments

The delivery footprint of the Indian BPO sector extends to over 75 cities across 25 countries outside India. Within India, the delivery footprint of the BPO sector extends to more than 30 cities across the country, and covers many Tier- 2/3 cities.

ITES, which started with basic data entry tasks over a decade ago, is witnessing an expansion in its scope of services to include increasingly complex processes involving rule-based decision making and even research services requiring informed individual judgment. It now offers services such as knowledge process outsourcing (KPO), legal process outsourcing (LPO), games process outsourcing (GPO) and design outsourcing among others. The wide range of services provided by the BPO can be categorized into two groups:

Horizontal BPO: Horizontal BPO involves function centric outsourcing. Examples of horizontal BPO are outsourcing in procurement, payroll processing, HR, facilities management and similar functions. Automatic Data Processing (ADP) is an example of a horizontal BPO vendor. ADP focuses on providing services in horizontal functions such as payroll, HR, benefit administration, tax solutions, etc.

Vertical BPO: A vertical BPO focuses on proving various functional services in a limited number of industry domains. It covers various horizontals to cater a particular industry as a whole. Healthcare, financial services, manufacturing and retail are examples of vertical BPO domains.


Effect of Global Economic Slowdown

While the BPO industry is bound to be impacted by the current financial crisis, the industry has started providing services to a wider set of verticals, thus reducing their exposure to any one vertical. For instance, the BFSI sector's share of the overall pie of services offered by ITeS-BPO companies dropped to 28 percent in FY2008 from 31 percent in FY2007 and this trend is expected to continue. Opportunities exist in the form of emerging verticals such as knowledge process outsourcing, legal process outsourcing, and engineering process outsourcing which all are multi-million dollar addressable markets. BPO sector recorded revenue growth of 31.6 per cent, amounting to USD 12.5 billion in 2007-08, of which export revenue accounted for over 87 per cent.

The industry footprint is steadily expanding to other geographies. However, India still remains the key destination for offshoring due to its abundance of skilled manpower, language capability and cost savings. It is expected that India will continue to lead the pack among Asia Pacific nations with 11.4 percent growth in domestic IT spending projected for 2009.The technologies that deliver significant cost savings such as global delivery model, concurrent processing, virtualization, unified communications and open source will see higher adoption in 2009. By 2012, the industry is expected to reach USD 28-30 billion [6] .

BPOs are moving to Tier II cities like Mysore, Trivandrum, Vishakapatnam, Pune etc. and rural areas to cut costs. The low cost of operations and considerably lower employee attrition rate are the two key factors that have encouraged many BPO organizations to extend their operations in small towns and villages. The current crisis has resulted in a sharp fall in attrition rate, from 30-40 per cent; it is down to 20-30 per cent [7] .

Way forward [8] 

India with its natural competitive advantage is likely to play a huge role in various segments of the ITeS industry:

The Indian animation industry is rapidly growing as a major outsourcing hub with a growth rate of 30 per cent.

The Indian KPO sector is estimated to become a USD 10 billion industry by 2012, from the current size of USD 4 billion.

India is fast becoming a hot destination for outsourced e-publishing work. As per a Confederation of Indian Industry (CII) report, the industry is growing at an annual rate of 35 per cent and India's outsourcing opportunities in the value-added and core services will help make the publishing BPO industry worth USD 1.46 billion by 2010.

As per a CRISIL study, engineering services outsourcing (ESO) is poised to be the next big opportunity in the Indian outsourcing services industry. The ESO sector is likely to grow at a compounded rate of 26 per cent and post revenues aggregating around USD 7.5 billion by 2012.

Realising the potential, after IT Parks and IT special economic zone (SEZs), the Government has cleared a proposal for creating much larger Information Technology Investment Regions (ITIRs) to give a fillip to the country's growing IT and ITES sector.


The objective of undertaking a review of the industry is to describe and gauge the economic/business conditions and trends affecting companies in India in the specified industry. This review provides a deeper understanding of the industry in which the company operates.

An understanding of the same allows us to evaluate ABC India's functions performed, assets employed and risks assumed in relation to similar entities within the industry.

However, it is important to note that within the ITES/BPO services space Indian companies operate on different economic fundamentals vis-à-vis subsidiaries/ branch of overseas companies. Typically the Indian subsidiaries/ branches of overseas companies operate as a captive service provider whereas the Indian companies are entrepreneurial ventures. Thus the economic and risk parameters tend to differ the way Indian companies operate vis-à-vis the captives, for instance, captives are insulated from market and price risk and typically they do not take technology initiatives or own any non-routine intangibles.

Given the fact that in a service industry, with the changing profile of companies, they tend to provide additional services and value-added services over a period of time. Specifically, it is a given phenomenon in the services space a service recipient initially tests the effectiveness, timeliness, deliverable and quality of the service provider's activities. Thereby, the level of activities, outsourced increase over a period of time. However, in any given situation the captive service providers continue to be risk insulated from the service they provide be it a low level testing or a code generation or high-level design. This fact is an essential element in comparing the effective pricing of a captive vis-à-vis Indian service providers.