Gartner: India's BPO market likely to lose market share

India's share will likely be whittled down by a number of countries

India is likely to lose market share in offshore business process outsourcing (BPO), from its current 80% to about 55% by 2007, according to research firm Gartner Inc.

"We don't expect any single country to challenge India," said Sujoy Chohan, vice president and research director for offshore BPO at Stamford, Conn.-based Gartner. Instead, India's share will be whittled down by a number of countries, which together will account for a 45% share of the offshore BPO market by 2007.

The BPO business requires English-speaking employees with a basic education -- available in abundance in most countries where English is spoken, Chohan said. India will lose business to some of these countries because it doesn't have a long-term plan for improving infrastructure and increasing the supply of quality employees for the BPO industry, he said.

India earned about $2.3 billion from BPO services last year, according to Gartner. By 2007, the worldwide offshore BPO market is forecast to grow to about $27 billion. Gartner's estimates refer to work outsourced to offshore third-party providers and don't include work sent offshore by U.S. and European multinational companies to their wholly owned BPO subsidiaries.

A number of countries understand BPO's potential to create jobs and have put together strategies to develop BPO business, Chohan said. These include Ghana, South Africa, Mauritius, Fiji, Malaysia, the Philippines, Australia, New Zealand and China.

"Even developed countries like Australia and New Zealand, which did not react to the IT services opportunity, are now coming up with integrated road maps for BPO," Chohan said.

China is also likely to cut into India's share of the BPO market when its BPO business matures in three to five years, according to Chohan. "China is still a long way [off] where English-speaking capability is concerned, and they won't compete with India where voice calls are concerned. But they will chip away at the low end of the market," including transaction-processing work such as rules- and form-based processing, Chohan added.

In contrast to countries with well-defined road maps for developing BPO, India doesn't have a clear strategy. India's poor infrastructure adds to the cost of doing business there, Chohan said, adding that BPO companies in India require a lot of redundancies such as backup facilities for power and telecommunications services.

India also doesn't have a formal long-term plan for creating a quality BPO work force. "In just three years of BPO [in India], there is already a huge staff-attrition problem," Chohan said.

Most English-speaking graduates in India have to be trained before they can be employed by BPO companies. "Government should either reimburse companies for the cost of training or put into place the training courses required either through the private sector or through primary, secondary and tertiary education in the country," Chohan said. Although countries such as the Philippines have similar problems, the governments in these countries are being proactive.

The growth of the BPO business in other offshore locations is also likely to be fueled by Indian companies setting up operations in other countries. The BPO initiative in Sri Lanka, for example, is led by two Indian companies setting up operations there, Chohan said.

Executives at Indian BPO companies don't agree that the threat to India's market share is significant. Customers would like to reduce risk by outsourcing to more than one country, according to Prakash Gurbaxani, CEO of TransWorks Information Services Ltd., a Mumbai-based BPO company. Indian BPO companies are becoming more transnational in operations because they need to leverage newer resource pools and meet their customers' preference for multilocation suppliers.

But the effect of these moves will be incremental, Gurbaxani said.

Although there is a shortage of trained manpower for the BPO industry in India, this is only a short-term problem, according to Gurbaxani. "Private-sector training institutions have already seen the opportunity and announced plans to train people for the BPO industry," he said. Also, as BPO companies move out of cities to small towns, more employees will be available.

Copyright © 2004 IDG Communications, Inc.

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