Easy termination gives smaller BPO deals competitive edge

Written by Diksha Dutta | Diksha Dutta | New Delhi | Updated: Mar 12 2012, 06:48am hrs
India's $13-billion BPO industry may have held up through the economic downturn, but deal sizes have been on a steady decline in the last two years. The average contract value (ACV) of BPO deals has declined by 23% from 2009 to 2011, whereas IT deals have witnessed a marginal increase in the same period. The sector has seen a bevy of smaller deals as contracts are easy to walk away from, and work can be divided among different service providers. This created more competition and better expertise in the market.

While reported ACV of IT deals witnessed a modest increase of 6% against 2009 figure, thanks mainly to a few large deals, there was a significant decrease in contract values for BPO contracts, down 23%, said Amneet Singh, vice-president of Everest Group. The share of BPO deal values used to be 33% in the overall outsourcing space in 2009, which is now down to 20%, as per Everest research.

Even Genpact, the largest BPO, feels the crunch. As customers turned cautious amid economic uncertainty, deal sizes have become smaller. Pricing pressure is still high and we have to focus on newer business models like analytics to succeed in this space, said a company official.

The BPO sector has been growing slightly slower than IT. While the IT sector is growing 16-18%, the BPO sector has been growing at 12-14% year-on-year, as per apex software industry body Nasscom. Sangeeta Gupta, vice-president at Nasscom noted: As BPO deals are not closely linked to client transactions, we have seen only $50-100 million deals in the last one or two years. On an average, deal sizes have fallen from $250-300 million to $150-200 million.

However, the share of BPO deals in the overall outsourcing space has not fallen much. The MD and partner of TPI Advisory, ISG, Sid Pai noted: The component of BPO deals has remained stagnant over the last three years and not grown much.