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After the initial setbacks faced by the BPO industry, the people are convinced on the impact outsourcing has on the profitability of the concern. The global BPO and shared services industry is expected to grow to $1.43 trillion by the end of 2009 according to a study conducted by Frost and Sullivan from a figure of $ 930 billion in 2006. The rate of growth in the industry saw a sudden spurt in the last few years.

The outsourcing industry which started with the transfer of basic data entry and market research jobs saw a transition in the later years with research and development works, engineering designs, animation industry, education, medical services, etc moving out from the parent company to those in the low cost countries abundant with skilled people. The shift from BPO to Knowledge Process Outsourcing and Legal Process Outsourcing was a major step made by the industry. Many companies have also made a transition from mere performers of outsourced work, to investing in businesses of the clients by taking up the risks, thereby reaping profits.

India, which had gained access to a huge portion of the outsourced work, is now under the pressure from other low cost countries that enjoy better infrastructure, lenient government policies and cheaper labour like Mexico, Canada, Brazil, Czech Republic, Romania, etc. The entry of Estonia at No.15 on the A.T.Kearney’s list of top 50 global offshore outsourcing locations, beating out Russia, Argentina and Canada is a new pressure felt by the current leaders. The stiff competition has driven many existing leaders in India to set up business operations in places where the cost of operations are less. For example, with consultants like Gartner predicting a dilution of India’s dominance in the BPO business by 2012, TCS has set up offices in Brazil and Wipro in Romania to take advantage of the business flow to these countries.

The last few years also saw a shift in the pricing policies of the BPO business. Along with the fixed price projects, flexible pricing models wherein the prices of contracts are based on the success rates of the processes handled are adopted. For instance in telemarketing the prices are charged for the successful leads handled. Some firms charge a price lower than the Total Cost of Ownership (TCO) for a particular process. Though the risks are high in these pricing models the companies can enjoy the satisfaction of reaping huge profits depending on the work done by them.

The governments around the world are laying out advantageous solutions for drawing the companies to set up BPO concerns in their countries. The Government of India’s one of the first steps was taken in 1991 by starting up an autonomous entity called the Software Technology Parks of India under the Ministry of Communication and Information Technology to provide technological infrastructure for companies who wish to start up operations in India. They also serve as liaison officers between the government and the business entities.

Government of India is said to be considering a proposal to set up a fund called “India Brand Equity Foundation” to promote India as an attractive destination for this industry. The government support in providing high speed internet through fibre optic cables by letting the ISPs to lay ducts for cables under the National Highways results in lesser chances for micro fracture in the highly sensitive cables. Joint efforts by the Central and State Governments also result in better infrastructure to the companies. For example the IT Corridor conceptualised by the State Government of Karnataka and Central Government can facilitate in easy setting up of business operations.

India has the advantage of having an established market in this industry. It is stated that one new foreign IT company is being set up every week in Karnataka for the past 150 weeks or so in spite of the stiff competition the BPO industry faces. However the introduction of a Fringe Benefit Tax at the rate of 33.6% on the ESOPs and Minimum Alternative Tax on the units in software technology parks can cause an adverse impact on this growth rate. With the real estate prices in India shooting up and being equivalent or higher to those in USA, the rise in the cost of operations can force the companies to shift to the low cost countries.

Being a fast pacing industry, drafting policies to suit the changing current is inevitable to ensure survival and growth.

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Posted: 25/10/2011 06:14:00

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