27

Chapter- III

3.0 BPO Services, Revenue and Impact on Indian Economy

3.1 Information on Indian Financial System

India has a financial system that is regulated by independent regulators in the sectors of

banking, insurance, capital markets, competition and various services sectors. In a number of

sectors Government plays the role of regulator.

Ministry of Finance, Government of India looks after financial sector in India. Finance

Ministry every year presents annual budget on February 28 in the Parliament. The annual

budget proposes changes in taxes, changes in government policy in almost all the sectors and

budgetary and other allocations for all the Ministries of Government of India. The annual

budget is passed by the Parliament after debate and takes the shape of law.

Reserve bank of India (RBI) established in 1935 is the Central bank. RBI is regulator for

financial and banking system, formulates monetary policy and prescribes exchange control

norms. The Banking Regulation Act, 1949 and the Reserve Bank of India Act, 1934 authorize

the RBI to regulate the banking sector in India. RBI also regulates foreign exchange under the

Foreign Exchange Management Act (FERA). India has liberalized its foreign exchange

controls. Rupee is freely convertible on current account. Rupee is also almost fully

convertible on capital account for non-residents. Profits earned, dividends and proceeds out

of the sale of investments are fully repairable for FDI. There are restrictions on capital

account for resident Indians for incomes earned in India.

Securities and Exchange Board of India (SEBI) established under the Securities and

Exchange board of India Act, 1992 is the regulatory authority for capital markets in India.

India has 23 recognized stock exchanges that operate under government approved rules,

bylaws and regulations. These exchanges constitute an organized market for securities issued

by the central and state governments, public sector companies and public limited companies.

The Stock Exchange, Mumbai and National Stock Exchange are the premier stock exchanges.

Under the process of de-mutualisation, these stock exchanges have been converted into

companies now, in which brokers only hold minority share holding. In addition to the SEBI

Act, the Securities Contracts (Regulation) Act, 1956 and the Companies Act, 1956 regulates

the stock markets.

India has commercial banks, co-operative banks and regional rural banks. The commercial

banking sector comprises of public sector banks, private banks and foreign banks. The public

sector banks comprise the 'State Bank of India' and its seven associate banks and nineteen

other banks owned by the government and account for almost three fourth of the banking

sector. The Government of India has majority shares in these public sector banks.

28

3.2 BPO Market Size

According to the NASSCOM and Everest India report, Indian BPO industry would grow

nearly fivefold from its present revenue to reach US$50B. The sector, that has grown

manifold in size and matured in terms of service delivery capability and footprint over the

past decade, is now at an inflexion point. Today, it faces a unique opportunity to enhance its

role as a full-service, value-adding partner. There is significant headroom in the addressable

BPO opportunity for buyers and providers, and there are sizeable untapped areas across a

wide spectrum of segments. Also, the Indian BPO sector is favourably positioned to benefit

from its established delivery capabilities, which influence buyers’ decision to expand their

global sourcing exposure.

The table blow shows the off shore BPO revenue, Indian BPO revenue and the total market

potential of the world BPO industry.

Table 2 BPO’S revenue

Source: Gartner Dataquest

29

3.3Growth of Indian BPO market

BPO in India has witnessed a steady growth .Both offshore and onshore component of BPO

market is increasing.

(A)In terms of Exports

Export revenue is likely to reach USD 59 billion, accounted for by about a 2.2 million

workforce. This represents a growth of 16.3 per cent; these exports also account for over 58.5

per cent share in aggregate IT-BPO revenue. Within exports, IT services segment is the

fastest growing at 19 per cent with export revenue of USD 40 billion, accounting for 58 per

cent of total exports. This sector has seen the emergence of full service players offering

traditional services like application development and maintenance to testing, infrastructure,

consulting and system integration, as also niche providers offering end-to-end services in

particular verticals or customer segments. This sector is now focusing on moving further up

the value chain by positively impacting business outcomes and customer revenues

Figure 5

Source: CEIC, RBA

30

(B) In terms of Domestic market

Domestic IT-BPO revenue (excluding hardware) is expected to grow at almost 17 per cent to

reach 918billion (rupees) in FY2015. Strong economic growth, rapid advancement in

technology infrastructure, increasingly competitive Indian organisations, enhanced focus by

the government and emergence of business models that help provide IT to new customer

segments are key drivers for increased technology adoption in India.

Large enterprises account for a significant share of the IT market and added USD15bn

to domestic revenue in FY13

Expansion of Indian firms in global markets is leading to increasing spend on IT for

efficient and cost-effective operations

SMB, another potential demand pool for IT services in domestic market

Adoption of technology for enhancing product visibility, reach and operational

efficiencies is leading to higher demand for IT services from SMBs

With 46 million units, India has the second largest SMB base in the world

Figure 6

Domestic BPO market by customer segment (FY2013)

Source:NASSCOM, Aranca Research

Note: Small & Medium Business (SMB)

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(C) In terms of Employment generated

BPO has contributed a lot in the Indian economy by down turning the graph of

unemployment. BPO has been successful in creating lot many jobs. This can be made clearer

with the help of the following table.

Table 3 BPO and employment

Year FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY

2012

Numberof

employees

(in‘000)

180 216 316 415 553 700 790 2500

Figure 7

BPO and Employment

Source: Zinnov, Aranca Research

So the greatest pool of graduates is moving towards the BPO industry thereby decreasing the

unemployment and developing the economy by utilizing the available pool of talent.

32

3.4COMPETITIVE LANDSCAPE OF BPO IN INDIA

BPO Industry in India is growing very fast. It is gaining ground everywhere. There is a lot of

competition today in BPO landscape. Let’s check out which are the major players in India.

Today many companies are using outsourcing to increase the strength and flexibility of their

business. BPO (Business Process Outsourcing) contributes in increasing the flexibility of the

companies by giving them more time to focus on their core competencies. BPO is a growing

business in India as it costs less than some other BPO markets. India is the largest BPO

industry with a $20 billion BPO-space. So here is the list of the top BPO companies in India.

.

Table 4 Top 10 BPO companies in India

Source: NASSCOM Everest Group 2013

1.Genpact India Pvt. Ltd.

2.Tata Consultancy Services Ltd.

3.Serco Global Services

4.Aegis Ltd.

5.Wipro BPO

6. Infosys BPO

7.Firstsource Solutions Ltd.

8.WNS Global Services (P) Ltd.

9.Aditya Birla Minacs Worldwide Ltd.

10.EXL

Top 10 BPO Companies in India

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(I)Genpact India Pvt. Ltd.

Genpact, formerly a GE-owned company called GE Capital International Services

or GECIS provides analytics and research, business process management (BPO), financial

risk management, supply chain, procurement, enterprise application services, and IT services.

It has a presence in 24 countries, with delivery centres in the United States, India, China,

Guatemala, Hungary, México, Morocco, Colombia, the Philippines, Poland, the Netherlands,

Romania, Spain, South Africa, Australia, UAE, Brazil, and Kenya.

Genpact, a global leader in business process management and technology services, is

recognized as a "Leader" in the Global Banking Business Process Outsourcing (BPO) Market

Report published annually by the global consulting and research firm Everest Group. Everest

Group conducts an annual study across global banking BPO service providers to analyze the

changing dynamics of the BPO landscape and assess service providers across several key

dimensions.

As part of Everest Group’s Global Banking Research, 12 banking BPO service providers

globally were assessed on the firm’s Performance, Experience, Ability, Knowledge (PEAK)

Matrix, a proprietary framework that provides an objective, data-driven, and comparative

assessment of providers based on their absolute market success and delivery capability.

Everest Group identified Genpact as one of the "Banking BPO Leaders" for 2013 based on its

market success and delivery capability. Currently it employs 62,000+ people in various

locations providing services in over 30 languages on a 24/7 basis.

(II)Tata Consultancy Services Ltd

Tata Consultancy Services Limited (TCS) is an Indian multinational information technology

(IT) services, business solutions and consulting company headquartered in Mumbai,

Maharashtra. TCS operates in 46 countries and has 199 branches across the world. It is a

subsidiary of the Tata Group and is listed on the Bombay Stock Exchange and the National

Stock Exchange of India. Its main function is to provide IT services. TCS is the largest Indian

company by market capitalization and is the largest India-based IT services company by 2013

revenues. TCS has been recognized by Forbes as one of the World's Most Innovative

Companies. TCS ranked 40th overall, making it not only the highest ranked IT services

company to make the list, but also the top Indian company.

TCS is the second largest in the outsourcing industry in India after Genpact. The BPO

division had revenues of US$ 1.44 billion in the FY 2012-13 which was 12.5% of the total

revenue of TCS. It has more than 45,000 employees which serve over 225 customers across

11 countries. The rate of attrition in BPO division during the financial year 2012-13 was

19.5%.

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(III)Serco Global Services

Serco was founded in 1929 as a United Kingdom division of the Radio Corporation of

America and initially provided services to the cinema industry. Serco is one of the 55

contractors hired by United States Department of Health and Human Services to work on the

Healthcare.gov web site. Serco Global Services manages the entire Customer Lifecycle from

entry into the system, data collation, modification etc into in-house developed CRM platform

I-Resolve to manage the high volumes of data transacted daily across India.

Serco Global Services is a leading global Business Process Outsourcing Provider supporting

multinational clients with over 60,000 employees in 100 delivery centres across US, UK,

Europe, India, Philippines, Australia, and Middle East & Africa. Serco Global Services

supports multinational and domestic companies with a range of services customized to

support the steadily expanding and demanding Indian market.

Considering the 1.21 billion populations and the caliber of a provider needed to effectively

service this entire segment, Serco Global Services is managing this entire BPO market.

(IV)Aegis Ltd.

Aegis, founded 30 years ago in the United States, is a global outsourcing and technology

company committed to impacting clients’ business outcomes by focusing on enhancing

customer experience across all touch points and channels. Aegis provides customer

experience (CX) management at the core of their business strategy and envision to constantly

innovating in order to have superior execution for their clients, thereby creating wealth for all

the stakeholders.

Aegis Limited is a global business outsourcing Provider Company with a turnover of $700

million. The company has a vast BPO business empire across 11 countries. Aegis is currently

operated in India from its corporate offices in Maharashtra Mumbai. Aegis currently employs

more than 55000 people.

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(V) Wipro BPO

Wipro Limited is an Indian multinational information technology (IT), consulting and

outsourcing Service Company headquartered in Bangalore, Karnataka, India. As of

September 2013, the company has 147,000 employees serving over 900 clients with a

presence in 57 countries. On 31 March 2013, its market capitalisation was INR 1.07 trillion

($19.8 billion), making it India's 13th largest publicly traded company.

Wipro BPO delivers strategic business outsourcing services and solutions to improve service

levels. Wipro’s business contributes around 8.5% to the company’s total IT services revenue

of over $5 billion. With 21000 employees and annual revenues of $490 million, Wipro BPO

stands at the 5th position.

(VI)Infosys BPO

Founded in 1981 by Narayan Murthy, Nandan Nilekani, N. S. Raghavan, S. Gopalakrishnan,

S. D. Shibulal, K. Dinesh and Ashok Arora, Infosys today is a household name and one of the

biggest brands in the field of IT. It is headquartered in Bangalore, India. The company was

started as Progeon Limited in April 2002 and is today amongst the top BPOs in India

according to NASSCOM. It was started as a 74% and 26% joint venture between Infosys and

Citibank Investment.

Infosys BPO operates in India, the Czech Republic, Poland, Mexico, Brazil, USA, China, the

Philippines, Australia and Costa Rica. About 60% business of Infosys BPO comes from

overlapping clients with the parent Infosys Ltd. In January 2012, Infosys BPO acquired

Australia-based Portland Group for about AUD 37 million and in September 2012, It

acquired US-based Marsh BPO for an undisclosed amount to expand its presence in the group

life insurance space.

Infosys BPO won two BPO Excellence Awards 2012 trophies in the BPO Innovation of the

Year and the Operational Excellence & Quality Award categories.

It employs 155000 people across India and the world. As of march 2013, Infosys had $30.8

billion market capitalization and is India's sixth largest publicly traded company that provides

IT solution, software engineering and outsourcing services.

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(VII) First Source Solutions Ltd.

Firstsource Solutions founded in 2001, is a provider of Business Process Outsourcing

services headquartered in Mumbai, Maharashtra, India. Firstsource provides customized

business process management to customers in the Banking & Financial Services, customer

services, and Telecom & Media and Healthcare sectors.

Firstsource is listed among "25 Best Employers in India 2011" as per Outlook Business - Aon

Hewitt study 2011. Employees in the organization have developed their management skills,

working within organization and were involved in building this company into the

independent commercial enterprise that exists today.

Firstsource is a leader in global business outsourcing. Firstsource spread its market across

India, US, Ireland, Philippines and the UK. With its large market the company managed to

have a turnover of $138 million with 26000 employees.

(VIII) WNS Global Services (P) Ltd.

WNS began operations as a captive / in-house unit of British Airways in 1996 and was

known as WNS World Network Services. WNS started providing business process

outsourcing services to third parties in 2002 and went public in 2006.

WNS Global Services is a global outsourcing service provider company head quartered in

Maharashtra Mumbai. WNS provides services more than 200 global and local clients. With

its excellent services WNS generates annual revenues of about $616 million by collaborating

with its 25000 employees.

WNS offers customer care outsourcing, finance and accounting, human resource outsourcing,

legal services, procurement, risk management, transformation solutions and research and

analytics to ten industries. These are banking and financial services; healthcare; insurance;

manufacturing; media and entertainment; retail and consumer packaged goods; shipping and

logistics; telecommunications; travel and leisure; utilities and energy.

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(IX) Aditya Birla Minacs Worldwide Ltd.

Aditya Birla Minacs is a business and technology outsourcing company with headquarters in

Bangalore, India; Toronto (Oshawa), Canada; and Detroit (Farmington Hills), USA. It is a

subsidiary of the Aditya Birla Group.

With 20,300 employees (as of June 2011) and 35 operations centers in Canada, Germany,

Hungary, India, Jamaica, the Philippines, the United Kingdom, and the United States, Minacs

provides the manufacturing, banking, financial services, insurance, telecom, high technology,

media, and entertainment, healthcare, and government and public sectors with outsourced

customer life cycle, marketing, finance and accounting, procurement and IT services.

Over 50 per cent of the Aditya Birla Group's revenues flow from its overseas operations. The

Group operates in 36 countries – Australia, Austria, Bangladesh, Brazil, Canada, China,

Egypt, France, Germany, Hungary, India, Indonesia, Italy, Ivory Coast, Japan, Korea, Laos,

Luxembourg, Malaysia, Myanmar, Philippines, Poland, Russia, Singapore, South Africa,

Spain, Sri Lanka, Sweden, Switzerland, Tanzania, Thailand, Turkey, UAE, UK, USA, and

Vietnam.

(X)EXL

EXL Service is a provider (IT) services, decision-analytics, operation management, and

outsourcing and transformation services company. It is primarily engaged in providing a

range of outsourcing services, business process outsourcing and infrastructure services.

EXL's services are structured around insurance, banking, financial services, utilities,

healthcare, transportation and travel industries.

EXL was incorporated in April 1999 in Delaware, USA, by a group including Vikram Talwar

and Rohit Kapoor. Vikram was then the Chief executive officer and Managing Director of

Ernst & Young, and Rohit managed international investments for clients at Deutsche Bank.

In August 2001, Conseco acquired EXL and operated as its wholly owned subsidiary. Later,

in November 2002, Oak Hill Capital Partners and FTVentures along with some members of

the senior management team bought EXL from Conseco making it a third party pure-play

business process outsourcing service provider.

EXL employs almost 21,000 people across the world of which 16,000 are employed in India

with revenue of US$ 442.9 million as of FY 2012.

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3.5 BPO AND FINANCE

BPO started with the low end data- entry processes to be outsourced to India. Then it moves

up the value chain and now stepped in finance and accounting also. Nowadays companies are

realizing that outsourcing accounting is a smart business proposition as compared to the

costly and elaborate in- house accounting capabilities. Additionally, there is a growing need

to cut costs, centralize accounting operations and adopt best practices by transferring the

ownership of running the accounting processes to experts. The economic downturn and

intense competition in the industry is forcing companies to optimize their back-office

processing capabilities, including capabilities for non-core processes.

A.SEGMENTS IN BPO FINANCE

There are two sub-segments of companies providing BPO Finance. For both segments Cost

Saving is the natural driver. They are as follows:

(I) COMPANIES IN BANKING, FINANCIAL SERVICES AND INSURANCES (BFSI)

If they outsource finance, it is their core business that they are outsourcing. In fact, finance

has been at the forefront of outsourcing – General Electric, American Express and Citi Bank

led the initiative in India. The reason is that their customer-facing front office is in high cost

locations. But there are functions, which, if delivered at low costs, would have a major

impact on their balance sheets.

(II) NON-BFSI COMPANIES

From them, the finance function is important as it helps the rest of the organization runs

smoothly. So such a company will outsource functions likes sales orders processing,

accounts payable, receivable managements, balance-sheet management and cash

management. For instance, a US based industrial major currently evaluating finance BPO

companies in India has 850 employees looking at finance at a total annual cost of $110

million. Global airlines also, under cost pressures, are looking India to outsource revenue

accounting and sales audit functions. These include British Airways, Australian Airlines,

Malaysian Airlines and Qatar Airways.

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B. FINANCIAL BPO PROCESSES BEING OUTSOURCED

Three types of financial processes are being outsourced to India. These include:

Figure 8 FINANCIAL BPO PROCESSES BEING OUTSOURCED

(I) TOP-END ACTIVITIES

The top end activities constitute only 10% of the work in the finance and accounting vertical.

At the top end of the scale are activities like administration of mortgage-backed securities,

financial planning and analysis, requiring expertise of at least MBA finance or a statistics

graduate. Other work in this category includes equity/debt market research and analysis.

(II) MIDDLE- END ACTIVITIES

The middle level which constitutes almost 25% to 35% of the work includes processes like

accounting operations, general ledger consolidation, reporting. It also includes tasks such as

income tax returns.

(III) CLERICAL LOW-END ACTIVITIES

Most of the work being outsourced to India in finance and accounting vertical consists of

clerical low-grade work. Almost 60% to 70% of the work includes processes like transaction,

accounting, fixed assets (depreciation calculation etc.), account receivable, account payable,

travel & living, cash application (goes into making ledger entries) and account reconciliation.

TOP END

ACTIVITIES

(AROUND 10%)

MIDDLE END

ACTIVITIES

(AROUND 25%-

33%)

CLERICAL LOW

END ACTIVITIES

(AROUND 65%-

75%)

I

II

III

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C. REASONS FOR OUTSOURCING FINANCE AND ACCOUNTING

There are many reasons which lure a business to outsource its finance and accounting

operations. They are:

(I) EXPECTATION TO REDUCE COST

Study conducted by Deloitte suggests that the firms achieve 39 percent cost savings from

moving operations to low-cost centres.

(II) STANDARDIZING THE FINANCE AND ACCOUNTING PROCESS

Companies on their own do not have the ability to standardize finance & accounting either

because of a lack of specialized resources, scale or simply because this is not their prime area

of focus. This is why it makes sense to outsource it. And as the back office becomes more

standardized, in particular the accounting functions, even bigger cost savings can be seen.

(III) OUTSOURCING DISASTER RELIEF

Organizations have become extra cautious after the WTC disaster and want to have

protection against disasters. Finance & accounting activities constitute a major part of the

activities of all corporate and as such even organizations not having finance and accounting

as their core processes want to safeguard their finance & accounting processes. For example,

after the collapse of the WTC the Twin Towers Fund (TTF) gave the task of handling the

accounting functions to outsource Partners International (OPI), a BPO firm specializing in

finance and accounting. OPI's Bangalore office handles most of TTF's accounting work.

Source documents are scanned in New York and sent to Bangalore by remote connection; the

Bangalore office handles 95 percent of document and transaction processing.

(IV) REAPING THE BENEFITS OF ECONOMIES OF SCALE

Outsourcing finance and accounting processes to cheaper locations where manpower and

infrastructure is less costly gives the outsourcing companies the advantage of economies of

scale. Moreover working hours can be increased in locations such as India by increasing the

number of shifts.

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D. MAJOR PLAYERS IN INDIA BPO FINANCE

Following table shows the list of major players in this vertical and the approximately number

of people in the respective organization.

Table 5 Major players in Indian BPO finance

Source: Banknet India

The above table explains the major BPO players who are dealing in outsourcing finance

including other business process, and the number of people employed by them in finance

outsourcing.

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3.6COMPETITIVE ADVANTAGE OF INDIAN BPO MARKET

(I) ABUNDANT TALENT

India’s young demographic profile is an inherent advantage complemented by an academic

infrastructure that generates a large pool of English speaking talent. Talent suitability

concerns are being addressed through a combination of government, academia and industry

led initiatives. It includes efforts by NASSCOM and other education agencies to facilitate

industry inputs on curriculum and teaching.

(II) COST SAVINGS

India has a strong track record of delivering a significant cost advantage, with client’s

regularly reporting savings of 25%-50% over the original cost base. The ability to achieve

such high levels of cost advantage by sourcing to India is driven by the ability to access

highly skilled talent at lower wage cost.

(III) CONTINUED FOCUS ON QUALITY

Demonstrated process quality and expertise in service delivery has been a key factor driving

India’s leadership in global service delivery. Since the inception of BPO industry in India,

major BPO players within India has been focusing on quality initiatives, to align themselves

with international standards.

(IV) WORLD CLASS INFORMATION SECURITY ENVIRONMENT

Indian authorities have built a strong foundation for an “info-source” environment in the

country. These include strengthening the regulatory framework through proposed

amendments to further strengthen the IT Act-2000.

(V) RAPID GROWTH IN KEY BUSINESS INFRASTRUCTURE

BPO sector has been a key beneficiary with the cost of international connectivity declining

rapidly and service level improving significantly. Indian government is showing a great

concern for the development of infrastructural facilities in all the major cities of India and

this gives a greater connectivity for the companies which are coming from off shore with

their countries.

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3.7ISSUES AND CHALLENGES OF INDIAN BPO MARKET

(I) INFRASTRUCTURE CHALLENGE

India’s ITES-BPO industry continues to attract significant business from both the US and

Western Europe. While national issues with infrastructure, e.g. telecommunications system

etc is being addressed, the local infrastructure (roads, bridges, airports, urban transportation,

etc) is becoming a bottleneck to the expansion of capacity. Getting a connection is still not a

hassle-free job.

(II) MOVING UP THE VALUE CHAIN

Customers are looking for vendors who can provide end-to-end solutions. Indian vendors are

using several methods like tie-ups with existing players, acquisitions, investing in research

and development and leveraging industry best practices for expansion.

(III) SHRINKING PROFIT MARGINS

To sustain in the highly competitive market, the players are looking for newer revenue

sources and opportunities to keep cash flowing in. Again with service level agreements

becoming stringent and sales cycles stretching far in international deals, the BPO service

providers need deeper pockets and financial muscles. High initial capital investments in the

industry, long gestational periods, competition leading to reduced billing rates, appreciation

of rupee against the US dollar have led to increased margin pressures and increased industry

consolidation.

(IV) HUMAN RESOURCE ISSUES

Another major problem is the high attrition and growth aspirations of the workforce. Odd

hours at job and stress are supposed to be major causes of high attrition rate which increases

recruitment and training costs. The service providers need to spell out a comprehensive

human resource policy that outlines a clear career progression path for the employees.

(V) COMPETITION FROM OTHER COUNTRIES

In the domain of Business Process Outsourcing (BPO), the countries competing with India

are Mexico, Philippines, Malaysia, China, and Canada. BPOs in India are also facing

challenges since the competing countries have several advantages over India. It’s not that

India cannot or does not provide these advantages but it’s sufficient to say that these

amenities in India are still at a nascent stage. These include:

Finding workers who are aware of the American culture

Setting up new service lines

Improving operating processes

Further cost reduction

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3.8 REGULATORY FRAMWORK ON INDIAN BPO

Each and every business is regulated by some law. So is the BPO industry. BPO industry

involves a lot of business processes (core and non-core) to be outsourced. A company

outsources its data and business processes to the other company, so it needs the proper

regulation otherwise it will lead to problems in the industry.

So in order to prevent the possibilities of scandals and problems there are regulations, some

of which are in process, framed to protect the BPO industry. It involves:

DATA PROTECTION LAW

SARBANES OXLEY ACT

DATA PROTECTION LAW

The new law has been necessitated by the European Union directive, which insists on EU

member states restricting outsourcing to countries that fulfil certain data protection

requirements. This law would not only cover companies offering outsourcing services to

overseas customers, but also those operating in the domestic market.

The government has also set up an expert group to review the existing legal framework in the

country, including the IT Act, 2000, and suggest specific changes. The proposed law will not

only have provisions to protect the privacy of individuals and companies, but will also set

stringent conditions on the use of personal information by companies in India.

The government’s objective in framing this law is not just to make Indian companies

compliant with EU norms, as most companies were bound by contractual obligations, but

also to introduce a law encompassing the broad aspects of privacy and protection of personal

information. Data protection is the major consideration in framing the regulation for BPO

industry.

The government is planning to introduce a law on data protection, which will regulate the

working of Indian Business Process Outsourcing Companies. The proposed legislation will

provide a framework to govern the use of customer data by Indian companies and prevent

any misuse. This will be the first attempt by the government to regulate the working of BPO

companies. The proposed law will cover areas like financial transactions, unsolicited bilk e-

mails, hacking and unauthorised access to personal information such as health information,

credit card and other personal details.

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SARBANES OXLEY ACT

One of the most pieces of legislation impacting the BPO industry today is the Sarbanes Oxley

Act. In response to Enron WorldCom and other scandals US Congress established the

Sarbanes Oxley Act in 2002.

It was established to better organizational transparency and governance, and improve

managerial accountability to shareholders.

The Act includes provisions for quarterly certification of final results (Section 302) and

management’s annual assertion that internal controls over financial reporting are effective

(Section 404). Section 404, which has received most attention from publicly traded firms,

requires formation of an accounting oversight board, the maintenance and evaluation of

adequate of internal control structures and processes as they pertain to financial reporting, an

attestation examination by independent auditors and the consequent disclosure of material

weaknesses. Entire business processes outsourced by the US firms in India need to comply

the SOX Act.

So the challenges to BPO providers in general and Finance and Accounting BPO providers in

particular, are to develop service offerings and service delivery methodologies that facilitate

compliance with Sarbanes-Oxley requirements. To overcome the lingering doubts of

prospective customers, providers should not only possess a detailed understanding of these

requirements, but also make recommendations to how to meet them. Too often however,

providers responded reactively, rather than proactively, to these issues.

So these are two regulations which currently regulate the working of BPO industry in India.

Data protection law will be enacted soon, hopefully and Sarbanes Oxley Act is doing its work

wonderfully. But still there are some shortcomings in BPO regulation which needs to be

addressed.

46

3.9 TRENDS IN INDIAN BPO INDUSTRY

Trends imply the various changes which we are going to see in the near future in Indian BPO

industry whether positive or negative.

(I) OUTSOURCING WILL STAY CLOSER TO HOME

With available workforce from layoffs in many industries and tightened risk profiles of

companies, especially in the financial services industry, companies won't have to go far

offshore to find talent. Planned initiatives by Barrack Obama and increased government

spending on infrastructure projects could lead to more domestic outsourcing, particularly for

construction, real estate and technology.

(II) GLOBAL UNCERTAINITIES WILL CREATE OUTSOURCING VOLATILITY

Overall, the fast-paced growth in outsourcing will slow in 2013, as companies lower

their spending on information technology, consolidate or exit markets, and find skilled labor

locally from layoffs in financial services and other industries.

(III) STRATEGIC COMPANIES WILL PROSPER

The economic meltdown could create opportunities for strong, well-positioned

companies."While the economic climate will not immediately improve, companies involved

in outsourcing that act strategically and decisively for the long-term will be increasingly

valued and sought," said IAOP (International Association of Outsourcing Professionals)

board member Sven Govaars, senior vice president, Colliers International.

(IV) BRANCHING OUT FROM CORE GEOGRAPHIC MARKETS

Indian outsourcing BPO services are widening their business from core markets such as the

UK and US and other parts or Europe because these markets were not badly affected by the

global financial crisis in this leads to a decline in their entire IT spending.

(V) VALUE ADDITION

The blend of IT and BPO as well as the emergence of business process restructuring into the

list of service providers was in motion for while a now. But many service providers are now

including the knowledge element into the integration, as an attempt to provide greater value.

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3.10 THE IMPACT OF BPO INDUSTRY ON THE INDIAN ECONOMY

A recent study by NASSCOM shows that the young and ebullient Indian IT-BPO industry

has contributed significantly to India’s growth story by inventing, reinventing and

transforming itself within a short span of time. The three-decade-old IT-BPO industry has

had great impact on the Indian economy and society, more than any other sector, and within a

much shorter time frame.

The Indian BPO industry has undergone a rapid evolution, as it has kept abreast of what the

global markets require in terms of products and services. Having learnt the ropes quickly in

the technology sector, which was traditionally never ever a stronghold for India, the country

has now positioned itself as an IT hub, a sourcing destination for BPO products and services

that spell trust, high quality, and cost-effectiveness. The BPO industry has shaped itself into a

process-oriented, Best Practices-focused and skill-rich entity that has found favour with

global customers.

From a time when it was taking care of unsophisticated back-end work for customers

including data entry, software development and support, application development and

maintenance and transaction processing of non-core activities, the sector has gravitated

towards IT strategy and consulting. One of the biggest contributions of the Indian BPO

industry is its creation of the brave new world of global outsourcing.

A ‘unique’ industry has been crafted by Indian BPOs, which has found global recognition

and draws huge foreign investment. The sector in fact, accounted for over 10 per cent of

India’s total FDI in the last decade.

Indian BPO players themselves have emerged as MNCs, operating as global companies with

a local flavour, in the geographies where they are present. The IT-BPO sector has a footprint

that covers 52 nations, 200 cities, and 400 delivery centres. 10 companies are listed on

overseas stock exchanges and the entire industry addresses the needs of over 400 Fortune 500

customers.

Going global has meant that Indian IT-BPO companies are also helping boost the economies

of the countries where they play, by participating in the development of the local ecosystem.

It is the IT-BPO industry that has led India’s transformation into a services economy, from an

agrarian economy. The sector has dominated this domain by accounting for nearly 10 per

cent of India’s service sector revenues and evolving a unique ‘service directed’ export-

oriented model. The BPO industry is currently contributing 9 per cent of India’s incremental

GDP and the per capita GDP contribution of BPO employees is over 80 times that of

agriculture.

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While the industry’s value proposition in the late 80s and mid-90s was more about providing

scalability and lower operating costs to clients, today it has to do with domain expertise that

drives end-to-end services as well as research and development. The industry is creating more

and more value for customers, having achieved scale and complexity in its offerings.

The industry has also emerged as a global hub for ER&D, an area it will continue to lead in

the years to come. Today, India houses over 750 captives, including the world’s six largest

software corporations that employ nearly 20 per cent of the workforce in the country.

According to the NASSCOM report, by 2020, the IT-BPO industry is expected to account for

10 per cent of India’s GDP and 14 per cent of total services sector revenues.

It is on the exports side however, that the sector has had the highest impact. This industry

accounts for 14 per cent of the country’s total exports. Having grown twice as fast as India’s

total exports over the last 10 years, it has modified the country’s export mix, from traditional

commodities to services. By 2020, nearly 18-20 per cent of India’s exports are expected to

come from the BPO industry.

The direct impact of the BPO industry is most often seen on its revenue contribution to

country GDP and employment generation it provides the population.

The employment generation figures of the sector are equally impressive. This industry has

created direct employment of 2.2 million and indirect employment of eight million. By 2020,

the figures are expected to go up to 10 million and 20 million respectively. The indications

are that significant global career opportunities will be generated due to the location-

independent models. The overall impact of these initiatives is that India is emerging as a

skills factory for the rest of the world.

Clearly, the Indian BPO industry is expected to emerge as a strategic growth engine for the

country by 2020, impacting the country’s annual GDP and exports, employment, regional

growth, fiscal burden and innovation in the future.

Going forward, India expects the IT-BPO sector to play an even bigger role in creating

balanced, socially responsible and inclusive growth for the country.