INDIAN ITES-BPO INDUSTRY : NASSCOM ANALYSIS

The Indian ITES-BPO Scenario

The Indian ITES-BPO segment continues to chart strong year-on-year growth, estimated at 37 per cent for FY 2005-06. Growth is being driven by a steady increase in scale and depth of existing service lines, and by the addition of newer vertical specific and emerging, niche business services.

To better reflect how the industry and customer markets view the portfolio of services sourced from India, NASSCOM has re-classified the manner in which it reports the various segments included within IT-ITES. For instance, this year onwards, engineering and R&D services are being identified as an independent service line and will be reported separately. Further, NASSCOM has increased its overall estimate of industry exports for the previous year (FY 2004-05), based on the details reported to NASSCOM and STPI by individual companies.

As a result of the reclassification and the revision of estimates, the historical values for a few segments have changed. In addition to the projections for FY 2005-06, to help ease comparisons we have restated the details for the preceding years FY 2003-04 and FY 2004-05 as per the new classification.

Key Highlights of Indian ITES-BPO sector performance

- Indian ITES-BPO exports are estimated to have grown from USD 3.1 billion in FY 2003-04 to USD 4.6 billion in FY 2004-05, recording a growth of nearly 48 per cent, and are estimated to reach USD 6.3 billion by the end of the current fiscal year (FY 2005-06).

- Net employment in the ITES-BPO segment is estimated to have grown by approximately 100,000 in FY 2004-05, taking the total direct employment to 316,000.

- Based on hiring trends observed over the year, this segment is likely to end the current financial year (FY 2005-06) with total employment projected to reach 409,000.

- Employee turnover/ attrition levels appear to be stabilising with the talent acquisition, development and retention initiatives being undertaken by the players, beginning to deliver results.

Key Growth Drivers of Indian ITES-BPO Exports:

- Globalisation, overseas competition and the business economics imperative
- Rapid growth of globalisation has added to competitive pressures across geographic markets that were previously relatively isolated from overseas competition
- The resulting impact on growth and profitability continues to push organisations towards more cost efficient business models

- Global sourcing going mainstream, significant senior business leadership vision and oversight
- Having convincingly established proof-of-concept, global sourcing is now a key element of corporate boardroom agendas
- As a part of mainstream business strategies, offshore/outsourcing initiatives are being accorded significant senior leadership oversight
- Increasing emphasis on leveraging the model for greater strategic business impact; not restricted to functional support (IT, HR, etc.)

- India’s demonstrated superiority, sustained cost advantage and fundamentally powered value proposition
- Outsourcing to India has provided companies with significant benefits over the arbitrage in labour costs – through business process enhancements and improvements
- Indian vendors are expanding their service offerings, enabling customers to deepen their offshore engagements; the shift from low-end business processes to higher–value, knowledge–based processes is having a positive impact on the overall industry growth
- Indian vendors have successfully built-up the scale of their operations to match the pace of increasing demand for these services – ensuring that client organisations do not have to settle for alternate options
- In spite of the rising elements of cost, Indian offshore operations provide cost savings of 40-50 per cent; inspite of wage inflation averaging 10-15 per cent annually, companies are able to leverage declines in telecom and other overhead costs, productivity gains and economies of scale to sustain the cost arbitrage
- India has the largest English-speaking talent pool in the world –over 440,000 engineering degree and diploma holders, approximately 2.3 million other (arts, commerce and science) graduates and 300,000 post-graduates are added each year
- Three-fifths of the Indian technical workforce has more than four years of experience and an even higher proportion has an engineering degree

Growth in Key ITES-BPO Service Lines

- FY 2004-05 witnessed steady growth across the key service categories of finance and accounting, customer interaction and human resource administration. These three segments accounted for an estimated 89 per cent of the industry revenues in FY 2004-05.
- With steady demand observed across these key segments, it is estimated that the segment composition will not change significantly in the current fiscal (FY 2005-06).

NASSCOM ITES-BPO Initiatives

- MoU with UGC: NASSCOM, signed a Memorandum of Understanding (MoU) with University Grants Commission (UGC) last year, to strengthen professional education in line with the IT industry’s requirements of demand for skilled professionals. Given the growing demand for skilled professionals, and the rapid changes in technology, there is an increasing need to keep the academia abreast of the skill set requirement of the industry. To meet this requirement, NASSCOM and UGC will jointly undertake a ‘Faculty Development Programme’ (FDP) for up-gradation of the skill-sets and knowledge base (in the area of emerging technologies, project management skills related to information technology) of the existing technical faculty in partnership with IT industry.

- MoU with AICTE: NASSCOM, also signed a Memorandum of Understanding (MoU) last year with All India Council for Technical Education (AICTE), for strengthening Indian technical education (through curricula, faculty, infrastructure, pedagogy improvements) in line with the IT industry’s requirements of relevant skill-sets in various disciplines at different levels (graduate, post-graduate, doctoral, etc).

- National Assessment of Competence: NASSCOM has launched NASSCOM Assessment of Competence (NAC) program for the potential employees in the BPO industry. NAC is an industry standard assessment and certification program that aims to ensure the transformation of a "trainable" workforce into an "employable workforce". In the first phase, the pilot which was launched recently, ran for 3 months in 3 cities, namely, NCR, Mumbai and Bangalore. Around 36 key ITES-BPO companies and nearly 15,000 graduates participated in the pilot.
One of NASSCOM's key goals is to catalyze the expansion of India's English speaking manpower pool and ensure that the country's ITES-BPO talent resources are equipped with industry relevant skill-sets. In line with this rationale, NASSCOM, alongwith Hewitt Associates and industry players, through the NAC has deployed the Assessment and Certification framework to ensure a steady supply of quality ITES-BPO professionals to meet the present and future requirements of the industry.
The program will test the aptitude of a candidate on different skill sets. This will include listening and keyboard Skills, verbal ability, spoken english, comprehension and writing ability, office software usage, numerical & analytical skills, and concentration & accuracy. NASSCOM will soon announce the national roll-out of NAC.

- National Skills Registry: NASSCOM is working with industry, present and prospective BPO employees and HR consultants to determine the best method to improve retention rates in the industry. NASSCOM in collaboration with the National Securities Depository Limited (NSDL) has launched National Skills Registry (NSR), in an attempt to further strengthen security in the Indian IT industry. This will be a centralized database of information about the employee's professional and educational background. The NSR has been specifically designed to ensure authenticity of data through independent verification and biometric identification of the individual.
NSR is a global first and NASSCOM is looking at the feasibility of extending a similar Registry to employees of the contractors to industry also, thus adding an additional layer of security for the industry.

- Certification Program for Frontline Management: Under the aegis of NASSCOM’s Executive Development Programme (NEDP), NASSCOM and QAI, the leading quality consultancy in India, last year unveiled the first-of-its-kind Certification Program for Frontline Management for ITES-BPO sector. The program has been launched nationally and was organised in the five major metros, Delhi, Mumbai, Bangalore, Chennai, and Hyderabad, in FY 2005. The program will soon be extended to other cities likes Pune, Kolkata, Chandigarh, and Jaipur.