Many top Indian BPO outfits under threat, warns Gartner

New Delhi, March 27 | Updated: Mar 28 2005, 05:30am hrs
As many as 70% of the top 15 Indian business process outsourcing (BPO) start-ups will cease to exist in the coming months, analyst firm Gartner has said.

By year-end 2005, 70% of the top 15 Indian-owned BPO start-ups that offer customer call centre services will be acquired, merged or be marginalised, it said. Gartner said despite the hype, only a small fraction of customer service outsourcing will be done at offshore locations.

Offshore call centres, offshore customer service outsourcing only represents a tiny fraction of the market. In 2005, it is expected to be less than 2% of the total and will grow only to less than 5% in 2007, it said. The worldwide market for customer service outsourcing is set to grow from $8.4 billion in 2004 to $12.2 billion in 2007. Gartner also predicted that through 2007, 80% of organisations that outsource customer service and support contact centres with the primary goal of reducing cost will fail.

Up to 2008, 60% of organisations that outsource parts of the customer-facing process will encounter customer defections and hidden costs that outweigh any potential savings they derive from outsourcing, it said.

Our research shows there are significant risks associated with outsourcing customer service, said Alexa Bona, research director at Gartner. Companies that outsource successfully can achieve cost savings of 25-30%. However, Ms Bona warned that a poorly managed model can reduce the quality of customer experience, dilute the brand values of the company and fail to deliver cost savings.

She said most companies neglect managing the customer service experience sufficiently and often lock the organisation into long-term outsourcing contracts without conducting appropriate pilot testing.

She also pointed to risks related to knowledge management and retention, accentuated by the fact that customer service outsourcing providers have staff attrition rates of up to 70-80%, compared to an average of 19-25% in in-house contact centres.