When the rate of growth in software exports slowed earlier in the decade as a result of the tech bubble bursting and the impact of 9/11 on global business, it was IT-enabled services and business process outsourcing which carried the can.
Now that software exports are rebounding, with leading billion dollar plus companies recording near 50 per cent topline growth and stable, if not slightly improving margins, it is time to look at what BPO is doing.
Outsourcing and India: Complete Coverage
The short answer is, BPO is doing nicely, thank you. This year (2004-05) BPO exports were slated by Nasscom to grow by over 58 per cent to $5.7 billion, until last year's figures got revised upwards by $300 million to $3.9 billion.
It is a safe bet that the current year will also eventually clock more than current projections. So it's all hunky dory? No.
Indian software has arrived, in a way. The global IT market acknowledges it. But the Indian BPO effort is in a different category.
It is still early days for the industry and several key issues need to be addressed before becoming certain that BPO will follow in the footsteps of IT.
The BPO outlook, based on the achieved compound annual growth rate of 50 per cent plus, can be a little rosier than is warranted. Naturally, a lot of it is not the industry's fault.
Offshoring software services has become mainstream in the minds of global business leaders. BPO is yet to get there. So countries like India need to do a lot for perceptions to change.
And here we come right up to the first thing that needs doing to ensure a bright future for BPO.
For a couple of years now India's political leaders, notably Arun Shourie, when he was IT minister, have been promising data security legislation but nothing has happened yet.
Without a law on the books, offshoring critical business processes to India will remain handicapped. This is particularly so as the key growth area in offshored services is the financial services sector.
Companies themselves will hesitate and trade unions in the west will make much of the absence of such law when work involving sensitive financial information is sought to be offshored.
The second problem with the Indian BPO industry is the absence of processes for certification of quality. (In fact, the processes themselves are not yet fully standardised.) They are yet to arrive globally.
Newcomers need labels or testimonials to tell the world they are top class. The Indian software industry played this card with finesse. It not only got its quality act together, it became a global leader in acquiring certifications like SEI CMM.
A Nasscom committee has worked on parameters to measure process capabilities, but there is no substitute, if nothing else from the marketing angle, for globally accepted quality certifications.
"The Indian BPO industry is in its early stages, debugging is needed for it to become mainstream," acknowledges Akshay Bhargava, CEO of Progeon, the BPO subsidiary of Infosys.
The third and perhaps the most significant issue facing the Indian BPO industry, one that is within its own hands to set right, is the way in which it is configured.
It still remains an industry marked by large players, at one end mostly into call handling work, and niche players at the other, doing higher value work involving entire processes, rather than individual tasks.
"There aren't that many with the requisite domain knowledge which makes large scale delivery of processes possible," says Avinash Vashistha, managing partner of neoIT, an offshoring consultancy.
"Looking ahead, I can see a lot of small and medium players doing high value work but industry volumes coming from large players at the commodity end," he adds.
One result of this concentration at the commodity end is price competition and the daily threat of new players from new geographies offering to work for less.
Industry leaders like Raman Roy, head of Wipro Spectramind, have publicly drawn attention to this. He has lamented the absence of innovators with disruptive ideas.
For his part, he says that Wipro Spectramind has in the last 12 months increased the non-call handling part of its revenues from 7-8 to over 15 per cent.
The company is also looking for acquisitions, which will secure it skills in domains such as HR and insurance.
Bhargava says that Progeon, in any case, has remained well within its self-imposed upper limit of 30 per cent of revenues from call handling. Industry sources do not dispute the numbers quoted by Roy and Bhargava but the point is that call handling is to BPO today what body shopping was to the software industry.
Everyone knows that it is the staple but it is difficult to get someone to admit: Yes, this is about all that we do.
One result of huge demand and commoditisation is massive recruitments and commensurate staff attrition.
Since call handling does not require high skills, firms recruit mostly on the basis of price (by offering to pay a bit more) and youngsters doing undifferentiated jobs keep drifting from company to company to earn more.
Bhargava says his attrition rate is 28 per cent annualised. One well-known company lost over 90 per cent of its staff in a single year. Vivek Kulkarni, chairman and CEO of B2K, readily admits, "The result of high attrition and recruitment is a delivery problem. You live from day-to-day," not knowing when a chunk of seats will fall vacant and upset your delivery.
The attrition problem has been accentuated by MNCs seeking to rapidly ramp up their captive centres. But interestingly, the bright spots for the industry in the future may be around the MNC captives who will almost inevitably become third party providers tomorrow.
Starting with industry leader WNS, which was born out of British Airways, and right down to GECIS and Indigo Lever today, high end work in some volume may increasingly come out of former MNC captives.
Right now standalone Indian third party BPOs are an endangered species.
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