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This section is based on the primary research conducted by Dun & Bradstreet India (D&B India) to highlight the trends and issues in the ITeS/BPO industry. Apart from a questionnaire-based survey, information was also collated from reliable secondary sources such as annual reports, company websites, regulatory filings, and data with industry association, regulatory bodies, government websites and various newspaper articles. The information so gathered was used collectively to understand the changing dynamics of the business.

Some of the key highlights of our study are enumerated below:

The profiled companies have been divided into six categories on the basis of their employee strength:
Category I: Having an employee base of less than or equal to 500
Category II: Having an employee base between 501 to 1,000
Category III: Having an employee base between 1,001 to 2,500
Category IV: Having an employee base between 2,501 to 5,000
Category V: Having an employee base between 5,001 to 10,000
Category VI: Having an employee base more than 10,000

Genpact tops the list in terms of manpower strength

Genpact ranked number one among the profiled companies in our survey based on the manpower strength. The top 10 companies reported an employee count of 166,484 and accounted for around 42% of the total employee base of the companies and about 21% of the total Indian ITeS and BPO employee base of 790,000 (involved in BPO exports according to NASSCOM estimates).

Seat utilisation varies across categories of companies

Seat utilisation is an important benchmark that has a direct impact on costs in BPO companies. According to our survey, the average seat utilisation of the profiled companies is 0.9; 81 companies have 218,975 seats and employ 204,271 personnel.

While the category I companies have the lowest seat utilisation of 0.31, category V companies and category VI companies have a higher than industry average seat utilisation at 1.3 and 1.2, respectively.

Bengaluru replaces Chennai as the most preferred location

Keeping with the trend of the last year’s study, this year as well witness another change in the most preferred location for delivery centres amongst the profiled ITeS and BPO companies. Chennai, which replaced Mumbai as the most preferred city for delivery centre last year, finds itself in second place this year with Bengaluru emerging as the most preferred location this year.

In 2009, 14.6% of the profiled companies were found to have operations in Bengaluru as compared with 14.0% in 2008. Chennai, on the other hand, was the next most preferred destination, as 13.1% companies were found to have operations there.

Further, the top five centres where companies had their offices/delivery centres were Bengaluru, Chennai, Mumbai, Pune and Hyderabad.

Another noteworthy revelation of this year’s study was that Gurgaon, which ranked fifth in terms of offices of companies in our 2008 survey, slipped to the eighth rank in 2009. In fact, Hyderabad, Delhi and Kolkata remained competitive in the delivery location arena and these cities came up the ladder by one rank each, thus displacing Gurgaon to the eighth rank.

Tier II cities such as Noida, Ahmedabad, Kochi, Mangaluru and Vizag remained at the same rank as in 2008 and occupied the ninth, tenth, eleventh, twelfth and thirteenth positions, respectively. The development of tier II and tier III cities as future delivery centres is likely to boast the cost competitiveness for companies. Smaller cities, which are covered in our survey under the others category, also displayed certain changes and preferences in the survey.

BFSI’s share in the overall pie of vertical served takes a further hit this year

Traditionally, the BFSI segment has been an early adopter of global sourcing, and the biggest vertical for Indian firms. In spite of being a dominant vertical for firms, its share in the various verticals in which ITeS and BPO companies operate, decreased to around 16.6% in 2009 as compared with 28.2% in our previous year’s study. In the 2007 study, the vertical had a 30.8% share among all verticals that were served. The receding share of the BFSI sector can be related to the sub-prime crisis of 2007 and the financial crisis of 2008, which toppled large banks, investment firms and insurance companies. More importantly, it is an indication of ITeS and BPO companies in India, attempting to diversify their business offerings and reducing predominant exposure to a single sector.

The healthcare vertical, which had lost its share among the verticals as per our 2008 study, notched up a few positions; its share improved to approximately 12.5% in 2009 up from 10.9% in the previous year.

Apart from healthcare, verticals such as retail & consumer, telecom and media gained credence when compared to their popularity in the previous year; these three sectors reported a 12.2%, 9.8% and 6.1% share, respectively, in 2009 up from 11.3%, 8.0% and 4.9%, respectively, as per our 2008 survey.

High-end, value-based work gains further traction

Due to increasing competition and constant pressure on margins many firms are looking beyond services that belong to the higher end of the outsourcing spectrum; the higher end and valuebased work that is usually designed to be a part of knowledge processing outsourcing, legal process outsourcing, eLearning and engineering process services is fast gaining higher traction due to the higher price point.

Nevertheless, currently, BPO services continue to draw the most business and remain the most popular service line; the BPO services, which include data capture/management, customer care, technical support, document management, medical transcription and claim processing, had a 54% share among the total services offered in 2009 as compared with 63% share in 2007. Unlike our study results in 2007 and 2008, BPO services lost their market share in 2009.

The share of KPO services such as market/business research, financial research and retail analytics increased from 10% in 2007 to 15% in 2009. Likewise, the share of EPO, which includes services such as CAD/CAM designing and drawings digitisation, more than doubled from 1% in 2007 to 2% in 2009; earlier in 2008, this segment had a 4% share in the services pie. This shift in the share of services proves that the Indian ITeS and BPO firms are increasingly moving towards providing high-end services to their clients, both in India and globally. We expect this trend to continue as value added services will be a key focus area for most companies in this space.

Furthermore, as a part of the survey, the respondents were asked to rank different services according to the potential they offered on a scale of 1-10 wherein 1 denoted the most promising service and 10 the least promising service. The traditional services of document management and eCRM were awarded an average rank of 4 and were cited to have the highest potential in the next 2 years. The e-Learning domain was found to be less popular among firms as course designing and modelling was voted as the least promising service line and received a 7.4 ranking

Data Capture/Management is the most popular service

As depicted in the table below, data capture/management was the most popular service with a share of 6.2% in the total services offered by companies which are covered in our survey. Customer care and contact centre services were among the other popular services.

Training and development expenses rise for large companies

The responses received under the survey reveal that around 40.0% companies who employ more than 10,000 personnel, or category VI companies, spent more than 5% of their revenue towards training their employees during 2009. On the other hand, 28.6% companies belonging to the category I or companies with less than or equal to 500 employees, spent only 1% of their total revenue towards T&D of employees.

Remuneration and career options primary reasons for attrition

Due to the presence of many ITeS/BPO companies in the Indian BPO arena, the competition among organisations to retain and hire talent has intensified. Moreover, the rapid growth in other sectors has further exacerbated the scout for talent.

The biggest reason for attrition in the BPO industry is the need for higher remuneration, revealed the survey. Besides, increasing awareness of career options in this sector by way of better career opportunities was cited as another reason for attrition.

During FY09, 39.2% companies in the ITeS and BPO industry said that attrition faced by companies in the industry was between 11-20%, 27.0% said that it was in the range of 31-40%, 20.3% of the respondent companies said that it was between 21-30% and 13.5% respondents in the survey said that the attrition rate during FY09 ranged between 0-10%.

Over 40% of companies feel that salary increased between 6-10% in FY09

According to 40.9% respondents the average salary hike during FY09 was between 6-10% and 31.8% respondents expect the salary hike to remain in the same range in FY10. Further, according to 25.8% companies, the salary hike was in the range of 0-5% in FY09 and merely 18.2% expect the salary hike to be in the same range in FY10.

Companies positive on industry growth in the next two years

While last year skilled manpower was cited as the hurdle to industry growth, this year economic slowdown was cited as the hurdle to industry growth. Besides, other emerging markets like China also pose a threat to the domestic market. Some respondents (23.0%) felt that the industry is likely to grow by more than 21% in 2010.

The downturn in the global markets is expected to increase the reliance of companies on outsourcing to reduce operating costs and to attain higher productivity; our survey results corroborates this fact as around 35.1% companies expect the industry to grow by more than 21% in 2011.

Global economic slowdown affects pricing the most

The global economic slowdown has affected the plans of ITeS-BPO companies in many ways. Pricing and volume of business of these companies, for instance, has taken the biggest hit owing to the slowdown. The respondent companies have awarded an average rank of 2.4 to pricing, whereas business volume has been ranked 2.6. As a result, pricing is under pressure for new contracts as well as the existing ones. Additionally, volume of business awarded to a company may also be a cause of concern.

Deepening relationship with the exiting clients: A big area of focus

The global economic slowdown caused by subprime crisis particularly in the US and Europe has largely impacted the Indian ITeS and BPO sector during the financial year 2009. The clients in the western countries are affected due to slowdown and many of them are re-negotiating the pricing, or opting for other vendors which has further affected the Indian ITeS-BPO companies earnings. Hence, the Indian BPO companies have witnessed low revenue growth and hence low profits growth. The Indian ITeS-BPO companies are increasingly focussing on adopting various strategies to tackle the current slowdown. As per the survey, deepening relationship with the existing clients remained the most preferred option for the Indian ITeS-BPO companies, followed by offering more value added services to the clients. Likewise, companies are also entering new verticals to expand their businesses.

In the past few years, verticals such as healthcare and telecom seem to be catching up as more companies are foraying into these verticals. Healthcare, which was considered the second mostpromising vertical according to last year’s study, has today taken the first position. Telecom has taken the second position, thus pushing BFSI to the third position. As mentioned earlier, the slow down in the banking sector is forcing companies to look towards other prospective verticals.

Road Ahead

The Indian ITeS-BPO industry has witnessed rapid growth over the past decade or so and became one of the favourite outsourcing destinations in the world. However, the sector’s growth was plunged in 2009 owing to global economic slowdown, which was the major challenge for the Indian BPO companies. But, as per the survey, the Indian companies are expected to emerge victorious in the coming years by adopting different business models, best practices and strategies to counter the slowdown. Some of the future plans of companies covered in our survey are: