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Insights

Dun and Bradstreet conducted a study to understand the dynamics of the ITES-BPO industry in India from various aspects based on primary research highlighting the trends and issues in of the industry. The study encompasses analysis of the key components of the industry viz employees, segments and service lines, verticals, concerns, future plans etc.

Key highlights of the study include–

I. Employee Trends

Top 10 featured companies account for more than one fifth of total industry employees of BPO exports

According to NASSCOM, the number of total employees involved in BPO export operations in FY2010 stood at an estimated base of 768,000 in FY2010. Our survey findings revealed that the cumulative employee base of the profiled companies in our study constituted close to 50% of the mentioned total employee base. Further, the top 10 companies from the study, as per employee size exceeding 10,000, had a cumulative employee base of more than 167,000; thereby accounting for nearly 22% of the total industry employee base involved in BPO export operations.

Room for both small and mid-sized players but consolidation looms on the horizon

The study findings revealed that small-sized players (employee size of 151-500) and mid-sized players (1,001- 5,000) collectively accounted for two thirds (66%) of the sample. This near equal coherence of both the types of companies denotes a healthy stability factor for the industry for survival and growth. However, the scenario seems to be changing gradually with companies’ intent on growing through inorganic growth. Some of the major M&A deals in FY10 such as Comp U Learn Tech India Ltd acquiring ACE BPO Services Pvt Ltd, EXL Service Holdings acquiring American Express’ travel services captive etc are an indication of the consolidation prospects in the near future.

Media and telecom sector; avenues of larger companies

A majority (around 72%) of the companies catering to the BFSI sector had manpower in the 151- 500 and 1001 -5000 brackets (34% in 151-500 and 37% in 1,001-5,000 brackets). (This trend was almost certain with a large majority of companies in the survey catering to the BFSI vertical and with most companies having manpower strength in the range of 151-500 and 1,001-5,000.) Healthcare too showed a similar trend with around 41% of the companies catering to the healthcare space falling in the 151-500 manpower bracket. However, the trend was different in case of media and telecom verticals. Around 44% of the companies that provided services to the media vertical had an employee size of 10,001-15,000; while around 30% of services providers for the telecom industry had and employee size in the above range.

II. Service Line Trends

Diversification makes further headway

BPO services still form a large portion of the services line of the ITES-BPO industry. In terms of services offered, conventional BPO continues to be the most popular service line, with a 59% share in the total services offered pie. Only 27% of companies offer exclusive BPO services whereas 7% offer exclusive KPO services. However, 43% of the companies are involved in offering multiple types of services in different combinations of BPO, KPO, LPO, e-learning and EPS. This seems to be an indication of the players willing to diversify their service lines for combating recessionary conditions.

On the total income side, a majority of the companies surveyed stood in the र 100-500 mn and र 501-1,000 mn range. Around 36% of the companies surveyed had a total income in the range of र 100-500 mn. While 18% had a total income of र 501-1000 mn

When comparing the service lines with total income; around 37.5% of companies providing LPO services were falling in the above total income bracket. However, in case of BPO service providers the total income was dispersed with some polarization. Around 68% of companies providing BPO services had total income less than र 1,000 mn while around 14% had total income more than र 5,000 mn. The trend was similar in case of KPO service providers too. However being a relatively higher value service most of the KPO service providers had a total income higher than र 100 mn.

CIS still leads the way in BPO service offerings; knowledge services continue high growth trajectory

Customer interaction services (CIS) was estimated to account for more than 40% share in BPO export revenue service lines as per NASSCOM and grew at more than 11% CAGR for FY2008-FY2101. The US$ 5 billion industry accounted for more than 10% of the total offerings in our study viz customer care (5.8%) and contact centre (4.8%). Customer care segment, which was ranked second in our previous edition managed to retain its position at the same place in this edition too. With the worldwide BPO spend for customer care services expected to rise from the current US$ 62 billion in 2010 to US$ 76 bn in 2013 (as per NASSCOM statistics), it seems that customer care service offering will yet again find itself to be the top service offering in the coming years.

The knowledge services segment which played a key role in BPO growth in 2010 has increased its share in the Indian export revenues from 8% in FY2007 to 9% in FY2010. Abundant of qualified talent pool has proved to be a determining factor in its meteoric rise. Initially set up for moving up the value chain this segment is establishing a strong foothold gradually in the research and analytical domain. The three primary services of this segment viz – market research, business research and financial analysis collectively accounted for a 10% share in our study. With revenue per employee slated to be higher than the normal BPO employees, knowledge services is expected to scale up further at a faster rate in the near future.

BFSI, BPO combination the most common

While the Indian ITES& BPO industry seems to provide a range of services including BPO, KPO, LPO, e-Learning for the BFSI sector, with a large of number of companies present in each service lines, for other sector the offerings of the ITES&BPO industry primarily were focused primarily in the lower end service lines only. Around 38% of companies that catered to the BFSI vertical provided KPO services. This can also be corroborated with the fact that most companies that provide outsourcing services to other verticals also cater to the BFSI segment.

III. Verticals Trends

BFSI continues to be the dominant segment; Healthcare the most promising

Since the evolution of outsourcing, the ITES-BPO industry has been historically largely dependent on the BFSI sector for business. Transitioning from back office support services to more critical roles in terms of support and strategy, the industry still relies on the BFSI sector for revenue generation. Although the recessionary period saw a contract in consumer demand and global spend levels, the sector was responsible for generating more than 50% of the Indian BPO export revenue in FY2010. Expectedly, over 65% of the surveyed companies catered to the BFSI vertical. Our study findings also matched with the industry’s second most sought vertical viz telecom with more than half of the companies catering to the telecom sector.

The healthcare segment valued at around US$ 540 million (as per NASSCOM) and with a CAGR growth of 85% for FY2007-2010, is one of the most promising verticals for the ITeS-BPO industry. Once again, our survey results corroborate with the industry trends wherein 62% of companies concurred about healthcare as the most promising vertical in the near future. Medical transcription, revenue cycle management, accounts receivable management etc are some of the prominent services expected to increase the scope of ITeS-BPO activities in the healthcare arena.

Education/publishing sector which although currently is catered to only by 25% of the companies in the survey; emerged as one of the promising verticals with over 41% of the companies intending to expand in the education/publishing sector.

When the verticals were compared to the total income of the companies; companies catering to the BFSI and healthcare vertical had total income largely in the range of र 100-500 mn, while the companies catering to the telecom and retail sectors had total income in the range of र 500-1000 mn.

IV. Location Trends

Mumbai as preferred location; Chennai and Bengaluru not far behind

A large number of ITES-BPO companies to continue to have a delivery centre in Mumbai. Around 45% of the ITES-BPO companies surveyed had at least one delivery centre in Mumbai. Chennai and Bengaluru stood as the next most prominent locations for the ITES and BPO industry with around 39% and 38% of the companies surveyed having a presence in these two cities, respectively.

While, the above mentioned cities continued to be the prominent locations for ITES& BPO Industry, around 58% of the companies shared the intent to develop new centres in the tier II and tier III cities. Vadodara, Jaipur, Hubli, Mysore, Mohali, Coimbatore, Indore and Nasik found a mention as places where the companies would like to open up their new centres.

V. Concerns impacting growth of industry

Developed economies drive volumes; Asia Pacific grows fastest

As per NASSCOM, US formed 62.5 % of the worldwide share of BPO spending in FY09. While the growth rates for Asia Pacific region has been higher, the volumes still come from the developed economies. This was also justified with 90% of the respondents in the survey catering to the US market and around 65% catering to the Europe market, with an average revenue share from the region for companies surveyed for FY10 at around 63% and 17% respectively.

Consequently, shadow of economic slowdown still looms over the industry growth

Given a wide majority of the companies catering to the US and European markets, economic slowdown in these markets, emerged as an important area of concern for the ITES & BPO industry next only to high attrition rate, which continued to be the widest area of concern for the ITES & BPO industry (over 15% of the respondents ranking it at 1 on concern) Other areas of concern were shortage of skilled manpower, rising salary levels, competition from other emerging countries and consequently shrinking margins.

Reasons for attrition

With attrition being the widest area of concern; the same was attributed largely to better remuneration and better career options. Both these reasons and their relevance remained largely the same as in the previous year’s edition. Other reasons for attrition such as work timings and organisational culture gained a slightly higher relevance.

Average salary hike in the range of 6-10% in FY10 emerged as the most common hike range. However, this range is expected to go to 11-15% in FY11.

VI. Future Plans

Industry optimistic for FY12

In the previous edition, around 79% of respondents expected over 10% growth for FY11. But this number went down to 54.2% this time. However, the picture seems to be more optimistic for FY12 with 74% of the respondents expecting it to grow by more than 10%.

As per NASSCOM, the Indian ITES & BPO industry saw a growth of around 7.7% in FY10. The growth was primarily driven by domestic BPO market, which witnessed a growth of around 18.4% as against a meagre 5.96% growth in the BPO exports.

The above growth rates are expected to be achieved by a combination of horizontal and vertical expansion strategies. Around 62% of the companies surveyed had the intent to grow their business in other service lines, while around 63% of the companies surveyed wanted to venture into other verticals. A large majority of companies also backed this intent by sharing the need for fresh hiring.