The concept of ?outsourcing? is not just loved by Americans or Europeans. Even Indians are realising the benefits of outsourcing their back-end and IT management. The first quarter of this year (ending March 31, 2011) itself has witnessed 20 outsourcing contracts by Indian clients, against 12 in the same quarter last year, reveals a report by Everest Group.
Apart from the natural recovery of the economy, there are other reasons too to this uptake and interest by Indian customers. An intriguing trend which was felt this year was the revived growth in the BPO sector. Unlike IT, back-end outsourcing deals have a longer time to show results on the sector. The last year?s first quarter had only one BPO deal (for three years) which was signed between Genpact and Max New York Life Insurance. But, this year the number has reached to 6, basically supported by the banking vertical. Amneet Singh, vice-president?global sourcing, Everest Group says, ?The BPO segment has now started picking up; earlier the domestic outsourcing market was only skewed to IT. The year 2010 had only 18% BPO domestic deals out of the total outsourcing deals. This year we expect it to be 25%.?
In the larger picture, IT industry forum Nasscom too feels that IT services growth will be 16.8 % in FY 2011 driven by localised strategies of service providers. On similar lines, the domestic BPO segment will grow by 16.9% motivated by demand from new verticals and technology platforms.
Genpact chief operating officer NV (Tiger) Tyagarajan admits, ?The domestic clients are now looking at transformational deals. They are keen to adopt new technology, shared services, business analytics and want to get global expertise. This is a market which has a lot of scope for innovation and all the Indian clients are growing at a rate of 30-40% a year.
The opportunity to be tapped is huge.?
With growth in domestic IT market expected to outpace India?s GDP growth, the industry had a strong focus in this segment. The domestic market grew by 16% to aggregate revenues of R787 billion. Increased technology adoption across government, corporates and SMBs for providing citizen services, enhanced internal controls and customer service led to an increase in outsourcing within the domestic market also.
Salil Dani, research director, global sourcing at Everest says, ?The average contract value(ACV) of Indian contracts ranges between $20-40 million and it is dominated by public sector and public/ private banks.?
While the first quarter of last year had only two banking contracts by Karad Urban Cooperative bank and Punjab and Sind Bank, this year the number stretched to six. On the other hand, the public sector contracts continue to be healthy which has increased from 2 to 3. The emerging vertical which is seeing traction in the domestic market is travel and transport backed by Airports Authority of India and Indian Railways outsourcing their work. Other budding verticals include healthcare and energy and utilities.
Dani from Everest Group mentions that while globally the split between ITO and BPO deals is 2/3rd and 1/3rd?in India, it is 80-85% ITO deals and the rest is BPO. However on the positive side, the contribution of Indian buyers to outsourcing deals is now 5%, which was negligible two years back. And industry analysts expect this to reach 10% within the next two to three years.