India’s BPO Future Breaks through the Automation Gloom
Despite episodes of economic and political turbulence, business process outsourcing (BPO) continues to be a fundamental part of the fabric of the international business. While India has deftly positioned itself as a major player in the outsourcing industry, questions are being raised as to how sustainable this once unassailable dominance will prove to be. Global business dynamics continue to adapt, and change and outsourcing may find itself at BPO’s event horizon.
7 Emerging Trends with the Potential to Impact the Outsourcing Market
With the outsourcing industry emerging from the aftermath of the global wobbles, several trends are providing a glimpse of India’s BPO future:
- Analysts are predicting the industry will continue to grapple with short-term cost pressures and resource constraints leading to increased pressure on service providers for more flexible pricing contracts
- Buyers are seeking more standardized solutions from their outsourcing partners, driving providers to differentiate themselves through performance rather than relying on pricing. The upside of this may be more stable and sustainable pricing structures
- An alliance-based operating model is emerging with a focus on realizing operational efficiencies, enhancing quality control and reducing back-office costs. This trend is expected to continue through to 2022
- BPO industry commentators are predicting Latin America and Europe will be the new outsourcing destinations shortly, with Brazil and Russia making their presence felt in the global outsourcing market, and China will continue to move ahead.
- Resurging oil prices will pressure companies to take advantage of technology and outsource work to maintain their profitability
- Consumption-based BPO technologies delivered via the cloud will continue to grow, thanks to their cost-effectiveness representing a growth opportunity for savvy BPO providers
- Major pharmaceutical companies will look to tap into molecular research and clinical testing by partnering with India, China, and Russia to radically overhaul the current cost of launching new drugs in the market
India’s Continued Leadership Role in Global Outsourcing
India continues to be the major destination for outsourcing thanks to its ability to evolve in line with changing market needs and evolve beyond simple price advantages.
Today, India’s key BPO customers are looking for skilled staff, enhanced productivity and assured service quality and business process excellence in their selected vendors. India’s customer service and efficiency remain ahead of competing for BPO destinations; driving its commercial relationships and helping it fend off emerging rivals.
India, with its large pool of skilled workforce including in-demand occupations such as Chartered Accountants, MBAs, Doctors, Lawyers and Research Analysts is likely to strengthen its position in the growing knowledge service sector. Hence, India is expected to continue to be a preferred destination for both back-end and front-end outsourcing
5 Key Future Opportunities for India’s BPO Sector
India is expected to continue to excel in service sectors that demand advanced English, such as KPO, Content Creation, and Medicine. NASSCOM predicts India will successfully emerge as a global hub for knowledge services soon leading up to 2022.
- India has a significant presence in pharmaceuticals, particularly in growth areas such as clinical research and manufacturing. Availability of talent for high-quality trials and data management gives Indian firms an edge over competitors. Ranbaxy, a major Indian pharmaceutical firm, has announced a tie-up with GlaxoSmithKline to collaborate on manufacturing some compounds
- According to a Booze and Company study, India is set to dominate the Engineering R&D sector. The ER&D sector is expected to grow to $1.4 trillion by 2020, with India’s domestic market expected to contribute 10 to 15 percent of the global ER&D market
- One area of sustainable economic advantage for India’s BPO sector continues to be its large pool of English-speaking lawyers with expertise in overseas legal systems. This expertise enables these firms to offer legal support and patent Several Indian companies have forged affiliations with American law firms, capturing a small share of the US market
- India now leads the FAO market with a substantial number of Fortune 500 companies having their outsourced operations in India through firms like IBM, ACS, and TCS
- Another vertical representing significant potential growth for Indian BPO firms is Infrastructure Management Services. A wide range of management services for IT infrastructure, application operations, IT security and maintenance fall into this emerging sector
Emerging Challenges for India’s BPO Sector
The global business process outsourcing industry continues to display rapid growth as it continues to evolve. New suppliers continue to enter the market while existing companies look to penetrate new markets and new sectors. With this growth, however, comes a commensurate need for infrastructure and a trained pool of expertise, two areas India has traditionally struggled to support.
- Rising labor costs in major Indian metropolitan cities are driving companies to explore smaller second-tier cities
- Increasing labor churn amidst India’s IT and BPO sectors is creating a spike in
- Emerging strong competition from South-east Asian countries such as Indonesia, the Philippines, Malaysia, Singapore, Thailand, and Vietnam as viable alternative offshore BPO centers
- Political forces in the United States and the United Kingdom are bringing pressure to regulate outsourcing activities
In May 2017, McKinsey & Company estimated powerhouse India IT firms such as Wipro, Infosys, Tata Consultancy, HCL and Tech Mahindra would be divesting upwards of 200,000 jobs up to 2020. The report brought into focus the scale of technological disruption the industry is potentially facing. The emergence of artificial intelligence (AI) and a generation of new algorithms are already making some lower level software engineer roles obsolete leading some Indian IT business segments to contract as a result.
No-shoring continues to be one of the fastest-growing instruments for delivering business services. AT Kearney observed that anonymous data centers hosting cloud-based automation are increasingly replacing human labor in the BPO and ITO sectors.
However, while most commentators focus on the job destruction aspect of AI and automation, technology’s role in job creation and re-shoring is often neglected. Those new jobs created by AI and automation are often more highly skilled and thus more highly paid jobs. The emergence of cloud-based service delivery and support has also transferred some of the work traditionally handled by BPO service providers to the primary platform providers such as Microsoft and AWS.
Is Recent Experience a Lead Indicator of India’s BPO Future?
Recent experience indicates around 25 percent of the jobs in BPO, software testing, and infrastructure support is in the process of being eliminated by automation. This experience is expected to continue through to 2022.
While global growth rates have slowed for Indian IT, revenues remain relatively robust. New technology-related disruption and slower growth rates may slow hiring in the business process outsourcing segment. However, revenue growth is anticipated to outpace employment growth thanks to its move to leverage productivity tools and outcome-based business models.
Recently, there has been much angst about the outlook of India’s BPO industry. The $150-billion industry represents around seven percent of India’s gross domestic product (GDP) and employs four million professionals. Increasingly, BPO is heading for a period of low growth or even stagnation in the face of increased investment in AI and automation.
However, the Indian BPO industry moved beyond cost arbitrage at the turn of the century and had progressively embraced solutions anchored on the latest technologies. One of the key issues posed by this looming digital transformation is where those new jobs will be in the future. If a digital transformation does indeed reshape global business flows in the lead up to 2022, India’s BPO sector will need to aggressively step up and play a significant part in this dynamic evolution.