Shake-out Imminent As BPO Cos Cut Prices By 40-50%: Gartner

Mumbai: | Updated: May 21 2003, 05:30am hrs
Fierce competition in the BPO (business process outsourcing) industry has caused a steep fall of almost 40-50 per cent in pricing in the past 12 months which is leading to consolidation in the industry, said an analyst with Gartner.

BPO companies are undercutting and doing deals in the range of $10-12 per agent per seat on an average. Smaller companies will find it more difficult to absorb these price reductions as compared to the larger well-funded companies, thus paving the way for a shake-out. The average price band has dropped by almost 40-50 per cent in the last 9-12 months, said Gartner India vice-president and research director Sujay Chohan.

A leading vendor who declined to be named said some cut-throat deals have been conducted recently at $7-8 per agent per seat. Excess competition and capacity is pulling the prices down.

Although a further drop in prices is possible in the near future, Mr Chohan said, We could see consolidation taking place in the next 12-18 months which would lead to a stabilisation in prices.

Interestingly, clients globally have realised that the lowest possible price is not the best way forward. Knowledge of the process delivery business dynamics and quality of services are overtaking costs as the main driver for offsourcing, Mr Chohan said. Besides, a shake-out is happening in the marketplace which will lead to less volatility in prices.

Higher value services continue to attract higher returns. Business transformation services adding value to their clients businesses and process improvements and strategic outsourcing have emerged as strong business models, said Mr Chohan.

Though transaction process outsourcing is growing, the future will be driven by business transformation outsourcing deals (also known as co-sourcing) as enterprises with resources partner BPO companies who have expertise. BPO companies will have to offer a strategic competitive advantage to their clients and ensure transformational capability to contribute to their topline growth and bottom line savings, he said.