Over Rs 16,000-crore domestic business of BPOs under price pressure

Dec 13 2013, 09:35 IST
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Many players in BPO industry are going slow on their existing business in the Indian market. Many players in BPO industry are going slow on their existing business in the Indian market.
SummaryDomestic BPO market is dominated by deals largely from telecom and financial services sectors.

The over Rs 16,000-crore domestic business process outsourcing market, under the stress of pricing pressure, has witnessed many players going slow on their existing business in the Indian market. There has been minimal expansion and they have kept their focus on lucrative markets of US and Europe.

The domestic BPO market, dominated by deals largely from the telecom and financial services sectors, has seen a steady driving down of prices over a period of time, creating an unprofitable scenario for most of the companies.

Firstsource, the RP-Sanjiv Goenka Group BPO company with revenues over $500 million is finding that the domestic market is hitting their profitability. Talking to FE, CEO Rajesh Subramaniam said, “Earlier we used to be at 25-28% gross margin but today we are at 13-14%. We get squeezed on price every year but the wages are going up. It will be difficult for us to make money domestically.”

Even Hinduja Global Solutions, with operations spread across the world, said it would go very slow on the domestic market as it is turning out to be very unattractive. CEO Partha De Sarkar said, “It is a very tough market with unbelievable pricing pressure.”

The domestic market started to attract BPO companies as the large private sector companies engaged in outsourcing deals. This also saw the BPO companies expanding into tier-2 locations to better manage their cost structure and have a focused approach on the Indian market.

According to Nasscom, the domestic BPO segment is expected to grow by 12.7% to reach R16,700 crore driven by demand for hosted services and higher uptake by traditional and emerging verticals, including the government.

Though over a period of time the companies providing such contracts started driving down the prices leading to the current situation. BPO company Quatrro CMD Raman Roy directly attributed the situation to the “immaturity of the buyers”. “They (customers) are just bringing down the price and we are competing within each other,” he remarked.

There is a clear dichotomy in the way BPO companies in India are working with the international and domestic operations as different as chalk and cheese. BPO players say that their engagement with the international customers are more partnership driven while in the Indian market it largely a client-vendor relationship.

Roy said that with no labour arbitrage model in domestic market, all customers follow the international practices of asking for RFP and other norms but the final decision always boils down to

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