Untitled Document
  
 

In this chapter we acquaint the reader with the functioning of the small and medium enterprises (SMEs) in the ITeS/BPO industry in Bengaluru and discuss the operational structure and business practices of these SMEs.

ITeS/BPO industry in Bengaluru

Bengaluru is considered to be the headquarters of the Indian IT and ITeS/BPO industry and most of the industry majors like Infosys Technologies, Wipro, Accenture, IBM, Cambridge Solutions and HTMT Solutions, to name a few, are present in the city.

In line with its vision to make Bengaluru the Silicon Valley of the East, the Karnataka government has provided good infrastructure to the global IT and ITeS/BPO players by establishing IT parks such as the Software Technology Park of India, the International Tech Park and the Electronic City. Bengaluru-based ITeS companies provide a whole gamut of services from voice and non-voice customer support and verification services to high-end research and analytics work.

Cluster Dynamics

The following key reasons ensure Bengaluru’s popularity as the IT and ITeS/BPO hub:

To better understand the dynamics of the ITeS and BPO SMEs in Bengaluru, Dun & Bradstreet (D&B) India undertook a sample survey of 30 ITeS and BPO companies that earned a total income of less than Rs 10 million in the year-ended March 2009.

The major insights drawn from this survey are as follows:

Operational Highlights

Most SME companies in the ITeS/BPO sector in Bengaluru that participated in the survey invest limited capital in plant and machinery; according to the survey 90% of the surveyed companies have investments below Rs 1 mn in machinery, as most offices use computers and other facilities on a long-term lease basis to keep their operational costs low.

Over 93% of the companies operating in Bengaluru in the SME ITeS/BPO sector are private limited companies. A majority of these companies were started by first-time businessmen. Further, over 95% companies had a total income below Rs 5 mn as on Mar 2009.

Quality Certifications

Quality certifications play an important part in the ITeS/BPO industry, however, the survey revealed that majority of the participatory companies were yet to be accredited with any quality certification; in fact, only 33% companies had met the certification requirements such as the Health Insurance Portability and Accountability Act (HIPAA) and ISO.

Traditional BPO services emerged as the most popular service line (79% share) in the total range of services offered. These include medical transcription, technical support, document management, payroll processing and customer care. KPO (12% share) and clinical research (3% share) are the other prominent services. Due to increasing competition and the constant pressure on margins, analytical work, such as KPO and clinical research, have gained popularity as these services are offered at substantially higher price points.

On a cumulative basis, medical transcription and technical support services turned out to be the most sought after services offered by the ITeS/BPO SMEs (22% of the surveyed companies provided these services) and document management services emerged as the second most sought after service at 19%.

The BFSI vertical emerged as the most favoured vertical as it had a 49% share among all the verticals served by the surveyed companies. The healthcare and telecom sectors, which have been growing at an impressive rate, are fast emerging as the other favoured verticals.

The economic recession seemed to have affected employees deployed in support departments such as HR, finance and IT more than the ones employed in core ITeS functions. The strength of employees in the core function decreased by less than 0.5% while the strength of employees in the support staff decreased by a remarkable 14.0%.

The survey further revealed that the surveyed ITeS/BPO SMEs had a very low average seat utilisation of 0.83. The seat utilisation of the companies catering majorly to the international market was slightly better than the companies catering majorly to the domestic market.

The survey revealed that during the year-ended Mar 2009, a majority of the surveyed companies (46.67%) generated more than 75% of their revenue from the domestic market whereas only 23.33% companies generated more than 75% revenue from the international market. India is one of the few countries that are not gravely affected by the economic slowdown as compared to other developing and developed countries; in fact, Indian outsourcing firms are cashing on the opportunity offered by corporate India and have started focusing more on the work offered by domestic clients.

Revenue growth

As the effects of recession forced companies worldwide to tighten their budgets, the Indian ITeS/BPO vendors’ domestic focus enabled them to survive the recessionary period. Consequently, for the year-ended March 2009, 40% of the surveyed companies reported an income growth between 26-50%, up from 33% a year ago.

Considering that the global market is yet to recover fully from the economic meltdown, 60% of the surveyed companies have projected a subdued growth of less than 25% for the next 2 years, but 36% of the companies projected higher growth in the range of 26-50%.

According to data released by the NASSCOM, the Indian ITeS-BPO sector revenue recorded a notable CAGR of 42.8% during FY00 to FY09, which was much higher than the growth in the IT services sector at 25.4%. Banks and other financial institutions lent wholeheartedly to these companies as they were safer and belonged to a sector that has been growing at a very steady rate and has a sound future. Thus, for ITeS/BPO companies, acquiring finance either in the short-term or the long-term is not much of a concern. The survey validated this point as 70% of the surveyed companies found finance availability to be easy.

IT Infrastructure;

The ITeS/BPO SMEs in Bengaluru have modern IT infrastructure to cater to the various needs of their clients. The survey revealed that most of the companies are well equipped with wireless LAN, latest storage management and network management tools, data warehousing equipment, VSAT and various customer relation management tools.

Further, around 70% of the companies surveyed utilised less than 25% of their allocated IT budget in FY09, followed by 20% of companies whose utilisation rate was between 25-50%.

In line with the strategy of spending cautiously, 50% of the companies surveyed have allocated less than 2% of their earnings for spending on IT, followed by 20% of companies who have allocated between 2-5% of their earnings for spending on IT for FY10.

The core function of an ITeS/BPO company is to process confidential data and information of third party clients; therefore, it is imperative for vendors to provide complete security to clients’ data. In fact, outsourcing companies spend huge amounts to have the latest data security tolls in place. According to the survey results, data security is the most important driver for companies to go in for technology upgradation followed by client requirement and better turnaround time.

However, the industry does face a few hindrances in technology upgradation and the prime hindrance is continuous power shortage, according to the survey results.