BPO
|Update|
Issue 45
BPOs miss FBT
sops gravy train, tour bills spell trouble
The finance minister’s announcement on FBT only offers a tax sop to computer
software. This segment will now have to pay 5% rather than 20% FBT on travel.
The ITES segment, which had cheered the proposal earlier this week, has actually
been left out of this relief loop. Which means, like manufacturing, BPOs
too will have to cough up 20% FBT on employee tour and travel bills.
The IT industry was able to convince the government that its travel bills are
very high and the entire business model is based on the turnkey projects that IT
engineers undertake overseas. While BPOs don’t have turnkey projects overseas,
the sector also tots up big travel and tour bills in foreign currency. Reason:
most BPO outfits send middle and top-level executives to the client country to
learn the details of a process before the process actually moves offshore to
India.
IT industry sources, therefore, say that although foreign travel expense is not
as high in BPOs as they are in the software sector, the bill is still very
substantial compared to the manufacturing sector. As a result, BPO companies are
understandably not happy at not being entitled to the FBT relief.
Under the new rules the base for valuation of FBT will be 20% for expenses on
entertainment, hospitality, sales promotion and publicity, employee welfare,
conveyance, tour and travel (including foreign travel), use of hotels.
Foreign tour and travel is a big expense for any IT company. Infosys, for
instance, spends about 4% of its revenues on foreign travel. Phone bills account
for close to 1%, another expense attracting the FBT.
Will
Medical Outsourcing Overtake the Call Centre Business in India?
Capacity will be a key driver
The healthcare sector is the world’s largest employer and accounts for a third
of global GDP. It is also going through phenomenal changes, especially in the
US, and the outsourcing trend is gaining momentum. India stands to gain in
medical business process outsourcing (MBPO), which could generate huge
employment and has the capability to match the call center boom. The medical
transcription, coding and billing processes alone are worth $25 billion. Today,
about 85% revenue of Indian BPO industry comes from call centers, but this
category accounts for less than 10% of work outsourced globally and cannot be a
sustainable base for future expansion.
Growing administrative costs, the need to turn profitable and the inability of
healthcare systems abroad to attract skilled manpower is driving the trend of
outsourcing into India. Though there are others like Australia, Switzerland,
Israel, Brazil, the Philippines and Malaysia that provide these services, India
is particularly favored because of time zone differences.
Several projects have come to India on an experimental basis, and most of these
are at the lower end of the value chain. We have made a start with medical
transcription, a segment on which the US alone will spend approximately $2.3
billion in 2005. IDC estimates this to go up to $4.2 billion by 2008. An equally
exciting opportunity awaits India in areas like telemedicine, telehealth,
medical management, clinical data management and disease management.
MBPO service providers will move up the value chain, progressing from simple
transcription work to converting the medical event transcribed into items on a
patient billing statement. They would move from answering calls from potential
loan services clients to pre-qualifying those clients. Players are trying to
offer more value-added services. They are assuming full process management
responsibility and providing more comprehensive services, instead of simply a
number of selective process specialties. By doing this, they also reduce the
cost of delivery.
But there are a few caveats, too. Some firms are trying to provide a complete
suite of services without giving thought to capability and capacity. Work is
available in plenty, but there is shortage of new entrants to the industry,
owing to ignorance about the potential of this industry. Also, because of
stringent regulations and complicated transactions, healthcare organizations are
generally diffident in shifting to strategic outsourcing. Currently,
organizations outsource non-niche or supporting areas of business. Indian
firms’ progress up the value chain will gain traction once the pilot projects
are executed successfully and firms start expanding into services that are
complementary to initial outsourced processes.
The growth of outsourcing revenue from India shall be driven largely by the
ability to get quality capacity, and a significant contribution will be from the
MBPO segment.
Source: www.financialexpress.com, May 6th
India
may garner 71% market share in KPO by 2010
Given the large pool of chartered accountants, doctors, MBAs, lawyers and
research analysts, India will dominate the Knowledge Process Outsourcing (KPO)
sector of the world by 2010. India will garner a whopping 71% of the projected
$17 billion KPO market by 2010 i.e. $12 billion, says Evalueserve, a knowledge
services company providing worldwide business and market research, data analysis
for various sectors. In its just released study, Evalueserve said that the
worldwide KPO market will grow by 45% per annum — from $1.29 billion in fiscal
2003 to $17 billion by 2010 and, India will increase its current market share
from 56% in 2003 to 71% by 2010. The reason behind India emerging as a world
leader in the KPO sector in the next few years is due to its location
attractiveness, infrastructure, communication, country risk, foreign direct
investment (FDI) incentives, political environment and time zone attractiveness.
There are immense opportunities in the high-end KPO business for the Indian
firms. The potential high-end opportunities are in the areas like
pharmaceuticals, investment banking, market research and competitive
intelligence, bioinformatics, data search, integration and management, the study
revealed. The high growth in this sector presents a huge opportunity for India
in terms of employment generation and wealth creation, which will result in
increase in the number of jobs from 25,000 in 2003 to 250,000 by 2010.
The average annual salary in the Indian KPO sector is currently around $8,000
per annum as compared to $6,000 per annum in BPO.
According to the study, the maximum share of value creation goes to clients
outsourcing high-end jobs, thereby cutting costs by 40% to 70% and improving the
quality exponentially. On the other hand, 30% of the revenue of a typical KPO
vendor is retained in the form of profits and 35% goes towards employee costs.
Source: www.financialexpress.com,
www.news.webindia123.com, May 6th
Why
Should You Outsource?
Outsourcing is not a one-size-fits-all solution to your
company's IT woes.
Lets look at the rationale behind outsourcing IT services and making sound
outsourcing decisions. The trick is to balance the possible benefits, such as
streamlining processes and reducing costs, with the associated risks involved in
weakening your competitive advantage by outsourcing a critical component of the
business.
The modern, online organization is crippled when IT services fail. At a basic
level, if email goes down, then so does much business activity. At a higher
level, if a new IT application is delayed, then so perhaps is a new product or a
new route to market — thus compromising competitive advantage. The rationale
behind outsourcing IT services is that, rather than struggle inefficiently with
these services internally, you can source them externally from an expert.
A good case in point is Lloyds Trustee Savings Bank (TSB). In 2003, it signed a
two-year managed intrusion detection service (IDS) contract with Unisys.
"As our customers want to transact 24 hours a day, we need to protect
ourselves from any attack that may lead to our services being unavailable,"
said Bob Spencer, Head of Group IT Security and Risk at the bank. Lloyds TSB
cannot risk being vulnerable to hackers, but IDS is costly and arduous to
deliver in-house. So, the bank outsourced the service to Unisys, which has the
expertise and economies of scale to deliver it both reliably and efficiently.
"We already tried to implement IDS in-house and found that we were unable
to assign the resources required to effectively manage and monitor the
system," continued Spencer. An outsourcing vendor like Unisys handles the
hiring and training of skilled personnel; and keeps up to date with new
vulnerabilities, new hacker tools, new security products, and new software
releases.
Source: www.insight.zdnet.co.uk/business/management,
May 10th
The
insourcing trend is bringing it all back home
Outsourcing is no longer the permanent cure for an expensive IT or business
process ailment. Having spent the past few years handing over control of
troublesome processes to service providers, increasing numbers of technology
leaders are choosing to bring control of problematic systems back in-house.
Prudential's recent decision to review a major outsourcing deal, to investigate
the potential of bringing part of its IT operations back in-house, follows a
series of high-profile moves away from external service provision.
This latest trend is being termed insourcing. Nearly two-thirds of organisations
have already brought some form of outsourced service back in-house, according to
consultant Deloitte.
The high level of insourcing can be partly attributed to poor management
decisions, says Richard Punt, head of Deloitte's strategy practice.
'While the popularity of outsourcing grew remarkably quickly, customers'
businesses were not growing to the same extent,' says Punt. 'Outsourcing was
often seen as a way of cutting costs.'
IT managers also used sourcing to farm out difficult IT and business processes
to external service providers - a case of out of sight, out of mind, says Punt.
'Outsourcing was sometimes seen as a way of dealing with your mess for less.
Some deals should not have been made,' he says.
The first indication that some blue-chip companies were rethinking their
arrangements came two years ago, with Cable & Wireless's (C&W's)
decision to terminate an outsourcing agreement with IBM. The 10-year, £1.8bn
deal, signed in 1998, covered IT infrastructure and customer billing systems.
Last September, financial services group JP Morgan Chase announced its intention
to cancel a $5bn (£2.7bn) outsourcing deal with IBM, and to reintegrate the
previously outsourced portions of its infrastructure, including data centres and
helpdesks.
Three-quarters of organisations are now working with multiple vendors to reduce
dependency, says Deloitte.
'Selective outsourcing is becoming the most popular tool among private sector
organisations,' says Gartner principal analyst Nicole France. 'Sourcing
strategies will start to evolve and will be based on a changing market
direction.'
Source: www.vnunet.com, May 12th
'Global
finance outsourcing to reach $47 bn by '08'
Global market for finance and accounting outsourcing services, which reached
over $30 billion in 2003, will reach $47.6 billion in 2008. Finance and
accounting business process outsourcing, one of the largest and fastest growing
segments within the BPO offering, will grow at a 5-year compound annual growth
rate of 9.6 per cent, with spending on outsourcing of the transaction management
function expected to grow the fastest, at 9.8 per cent, over the next five
years, International Data Corps said.
The US will remain by far the largest finance and accounting BPO market, while
Europe, the Middle East and Africa will be the fastest growing region in terms
of F&A BPO spending in the short to mid-term, the study said.
While cost cutting remains the primary reason for outsourcing F&A, IDC said
the need to solve strategic business issues is increasingly driving F&A BPO
spending globally.
Mergers and acquisitions among FA BPO vendors will continue to accelerate as
providers aim at gaining market share, expanding into key regions and acquiring
specialized business process and consulting expertise.
However, the report also noted that finance and accounting wouldn’t become a
fully outsourced business function in the foreseeable future, due to the
strategic importance.
Source: Press Trust of India, May 13th
Perot
Systems to hire 2,500 in India
Perot Systems Corp., the largest US provider of outsourcing services for
hospitals, plans to expand its operations in India to reduce costs and drive
growth in an increasingly competitive environment. Perot Systems, which
currently has a quarter of its staff based in India, plans to increase the
headcount by 2,500 to 7,000 at the end of the year.
Turnover in its India outsourcing operations is about 24 per cent, much lower
than the industry average of 52 per cent.
"People who work for us there are not back-office people," CEO Peter
Altabef said in an interview. "They get out to meet clients and they are
actively working as part of our delivery and management team."
Perot said its staff in India has helped keep costs low. The company grew its
revenue by 22 per cent last year, but as a mid-sized firm, it is sandwiched
between large vendors such as International Business Machines Corp. and smaller
Indian ones.
Source: Reuters,
May 13th
Coding
is passe, R&D is the new buzz
Indian IT professionals undertaking low-end computational work like programming,
coding, designing and web development for global majors is passe. A new breed of
manpower with sophisticated skill-sets (and with more complex degrees) is
evolving to undertake high-end product development, IT services, and R&D
work, for domestic and overseas companies.
Job profiles in the BPO sector too are undergoing a transformation. While a
majority of the new recruits in the industry still continue to be fresh
graduates, professionals with complex degrees like M Tech, MBA, CA, ICWA, etc,
too are making a beeline to take up work in domain-specific back-office
processes in analytical, advisory and consulting area.
India’s competitive advantage because of the English language skills of its
population. These language skills are now being complemented by high level of
education in the Indian workforce. As it is, more than half (55%) of all Indians
working in Silicon Valley’s high-tech industries had an MS or PhD degree.
Closer home, 81% of all software professionals had a graduate degree or
above—17% were M Tech, MBA, CA, ICWA; 69% were B Tech, BE or MCA; 14% were
diploma-holders or graduates.
As per a survey, from 1999-00 to 2003-04, total employment of IT professionals
in both IT producing and IT using industries in the country grew 30.1%.
Employment nearly tripled in five years and the number of IT software and
services professionals employed is likely to increase to over 1 million in
2004-05. This figure includes professionals who are engaged in software, IT
services and ITES-BPO services.
More than 250,000 students graduate annually in India with engineering degrees.
Another 500,000 graduate with non-engineering degrees and are prepared to
participate in the IT sector.
The total number of IT and ITES-BPO professionals employed in India has grown
from 284,000 in 1999-2000 to over 1 million in 2004-05, growing by over 150,000
in the last year alone.
It is estimated that ITES-BPO companies will recruit over
94,000 professionals by the year-end while IT services and software companies
will add another 109,000 professionals in the same period.
Source: www.financialexpress.com, May 16th
Call
center Training for the underprivileged
Aptech provides training in voice and accent and
personality development for appointment in the BPO/call center industry to the
weaker sections
IT education provider Aptech Ltd has been empanelled by the Ministry of Social
Justice & Empowerment, Government of India to provide training in voice and
accent and personality development under the “Coaching & Allied Assistance
for Weaker Section” scheme introduced by the ministry. Aptech is inviting
applications from candidates belonging to schedule castes (SCs), other backward
classes (OBCs) and minorities for admission in modules for voice and accent and
personality development for appointment in the BPO industry and call centers.
Selected candidates, upon admission, would not only be entitled for free
coaching but a monthly stipend of Rs 700 and Rs 225 for outstation and local
candidates respectively.
A total of 60 seats will be available at each location i.e. Delhi, Mumbai,
Kolkata, Chennai, Bangalore and Hyderabad.
Source: www.ciol.com, May 24th
Outsourced
Product Engineering: The Next Wave
Outsourcing engineering services is a small but growing offering from
outsourcing service providers. According to AMR Research’s 2004 BPO survey,
15% of manufacturing companies are outsourcing parts of their research and
engineering activities, and another 10% of manufacturing companies have plans to
outsource some activities by the end of 2005.
Companies must reexamine their product development lifecycle and take judicious
advantage of outsourcing services to reduce costs and time-to-market.
· IBM
recently inked an agreement with Nortel to create a
joint development center to develop next-generation products and services for
Nortel. This represents one of the first major contracts for IBM’s
1,200-person engineering services group.
· According to a recent
BusinessWeek article, global electronics manufacturing company Flextronics
is investing heavily in expanding its contract manufacturing business to include
outsourced engineering services. In the past few years, it has spent more than
$800M on acquisitions, and now has a 7,000-person engineer product design force.
· The market for outsourced
engineering services is expanding globally. NASSCOM, the Indian software and
services trade group, reports that the market for outsourced embedded systems
development in India reached $1.6B in 2004. According to our 2004 Business
Process Outsourcing (BPO) survey, 13% of the outsourced engineering work is
being done in India, and 19% is being done in other Asian countries, including
China.
Outsourcing product engineering
can provide competitive advantage for manufacturing companies. Just like any
business process, product engineering can be decomposed into commodity
activities and those that add value. By outsourcing the commodity engineering
services, a company can focus its efforts on more valuable product engineering
tasks that benefit the customers more effectively.
Source: www.amrresearch.com, May 24th
Prepared by
Abhimanyu Puri, BBA (MAHE) 2nd year
Skyline Business School
Hauz Khas Enclave, New Delhi 110 016
Tel: 2686 4848, 2652 4399
www.SkylineCollege.com