A year back, the Indian market did not make any business sense for them. The charge per call or document analysing and processing cost was too low compared with the North American outsourcing business. Now, for various reasons, planners and strategists of large and small business process outsourcing (BPO) companies operating in India – many of them Indian companies?are busy scouting for opportunities in the Indian market.

Market reports suggest that some of the companies like Wipro BPO, Hinduja TMT, IBM Daksh and First Source are aggressively pushing forward their plans to establish their domestic business.

And, why not? In the last two years, the cost of customer service outsourcing for the telecom companies has grown by 10-12%. In fact, from KV Kamath, managing director of ICICI Bank, to Sunil Bharti Mittal, chairman and managing director of Bharti Enterprises, all say that the rising contact centre costs have become an operational issue.

?The rise in outsourcing cost in customer service area worries us. We have to increase the operational efficiency so that it does not affect our profitability,? says Mittal.

For BPO companies, it is an opportunity. ?I think today, the cost for the service we charge is less for a company than if it wants to run the entire service on its own,? says Sanjeev Sinha, head of domestic business at Firstsource Solutions.

So Wipro BPO, for which less than 2-3% of the existing business comes from the Indian market, is planning to have a well-spread operation to serve the domestic companies. On an average, the share of domestic revenues to the total is less than 5% for the top ten ITeS-BPO companies, and could easily rise to 10-15% in the next few years. In the quarter ending June in the current fiscal, domestic business contributed around 10.9% as against 2.7% in the June quarter of 2006. With a growth rate of more than 50%, analysts say domestic revenue will easily reach 15% of the overall revenues in the next few years.

It is difficult to quantify the present size of the Indian market though people like Aditya Gupta, chairman of Infovision?one the largest domestic players in the BPO business?says it will be around Rs 6,000 crore.

IT industry body Nasscom says it is coming up with a study on the domestic market, but there has been no rigorous survey available to understand the market. ?The market is dominated by the small players, and it is not uncommon to find players in tier II and III cities with less than five seats,? says Gupta.

Gupta says the big BPO companies? interest in the Indian market has deepened in the last two to three quarters, although he has his own doubts about how these companies will perform when it comes to serving the mass market. Infovision, with revenues of Rs 200 crore, has 23 centres in the country, employing 9,000 people. Of these, around 8,000 are employed for the domestic business.

While V AnandKumar, Wipro BPO?s vice-president for people supply chain and employee branding, feels that one of the reasons for the sudden spurt in the interest level by the top BPO companies for the Indian market is the appreciation in Indian rupee and the realisation by the management that the labour cost arbitrage between the Indian market and the more developed market may not continue for ever.

?In fact, we are seeing a gradual decline in the wage differences especially after the opening up of new BPO markets like Philippines,? AnandKumar says.

But, for the Indian BPO companies serving the international market all this was nothing new. Some analysts had cautioned them about the impeding threats for the Indian BPO industry from cost arbitrage and competition from ?low-labour-cost destinations?.

Gartner, in one of its reports in 2005, had said, ?Although no single nation poses a threat to India?s dominance, during the past two years, more than 50 countries have emerged to cumulatively threaten its position in the BPO market.?

Gartner estimated that ?India will lose roughly 40% of the global offshore BPO marketshare to these emerging global destinations by 2007 (0.7 probability).?

Though it is yet to be estimated how much India has lost in the global offshore BPO market, Nasscom, in its Top 15 ITeS-BPO exporters ranking for 2006-07, has some estimates. According to the industry association, compared to 33.5% growth in FY 07 contributing $31.4 billion, in FY 08, the growth would be around 30% with export revenue of $10.5-11 billion.

Says Kalyan Kar, managing director of Acclaris Business Solutions Pvt Ltd, which does high-end BPO jobs for Fortune 100 companies, ?The threats are real. But still it has little impact on the country?s outsourcing export business.?

?I believe the interests shown by the big Indian BPOs are because they have sensed that in the last few years, the Indian market has matured enough and there is an opportunity,? Kar says.

The country?s top BPO enterprises have realised that business in India will help them optimise their operational efficiency and cash on the business opportunities in a number of ways.

?From the same centre, we can serve Indian customers in the day shift and North American customers in the night shift. Also, as the Indian business is going global, with experience in international outsourcing business, large Indian BPO companies can start serving their global operations from hubs in India,? says V AnandKumar.

Regarding domestic business opportunities, Rajdeep Sahrawat, vice-president of Nasscom, feels that as customer service becomes the key factor for companies to retain clients, there is a need to have specialists who would provide quality customer relationship management.

?Here comes the synergy. Gone are those days for Indian companies where they could tell their customers, ?take it or leave it?. The need to outsource back office management to retain existing customers is driving the Indian domestic BPO business,? says Sahrawat.

Take the case of Firstsource Solutions, a leading Indian BPO. Today, one third of its 15,000 employees are serving five companies operating in India in the areas of financial services (primarily banks) and telecom operators.

Sinha of Firstsource Solutions says that Indian companies have realised that they would lose their focus once they start doing everything. ?So companies have started outsourcing their back office work and there lies the opportunity,? says Sinha.

According to a Nasscom-IDC study on domestic ITeS-BPO market done some time back, customer care and sales and marketing contributed around Rs 3,394 crore and Rs 1,776 crore respectively in 2006, out of the total domestic revenue of Rs 6,608 crore. The study points out that the Indian market is driven by voice-based services with customer care and sales and marketing activity accounting for about 70% of the total.

V AnandKumar of WiproBPO says that as more and more Indian companies join the outsourcing bandwagon and demand for good quality service increases, the BPO companies have to explore new opportunities in smaller cities.

?More and more of us will go to the second and third tier cities. For telemarketing one does not need to know English, local language is enough and these services can be done from smaller cities where there is no cost pressure,? says Kumar.