Six Key Challenges For Indian ITES-BPO Industry

Updated: Feb 20 2004, 05:30am hrs
1 Infrastructure Challenges
Indias ITES-BPO industry continues to attract significant business from both the US and western Europe. While national issues with infrastructure, eg telecommunications system etc is being addressed, the local infrastructure (roads, bridges, airports, urban transportation, etc) is becoming a bottleneck to the expansion of capacity. Getting a connection is still not a hassle-free job.

2 Moving Up The Value Chain
Customers are looking for vendors who can provide end-to-end solutions. Indian vendors are using several methods like tie-ups with existing players, acquisitions, investing in research and development and leveraging industry best practices for expansion.

3 Shrinking Profit Margins
To sustain in the highly competitive market, the players are looking for newer revenue sources and opportunities to keep cash flowing in. Again with service level agreements becoming stringent and sales cycles stretching far in international deals, the BPO service providers need deeper pockets and financial muscles. High initial capital investments in the industry, long gestational periods, competition leading to reduced billing rates, appreciation of rupee against the US dollar have led to increased margin pressures and increased industry consolidation.

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4 Ability To Quickly Achieve Scale
It will be critical for vendors to be able to scale up quickly as large customers prefer vendors with size, large vendors command a premium price versus the market besides economies of scale help margins (a vendors ability to improve the shift factor would have significant impact on their profitability).

5 Pricing Options
The pricing options should be such that it provides cover from all macro-economic risks like currency rate fluctuations and business specific risks like increase in performance metrics. This is more relevant as the sales-cycles has lengthened and there are backlashes in foreign countries.

6 Human Resource Issues
Another major problem is the high attrition and growth aspirations of the workforce. Odd hours at job and stress are supposed to be major causes of high attriti-on rate which increases recru-itment and training costs. The service providers need to spell out a comprehensive human resource policy that outlines a clear career progression path for the employees.

Source: Nasscom/Assocham