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CHAPTER – I

INTRODUCTION TO ITES INDUSTRY

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CHAPTER I – INTRODUCTION TO ITES INDUSTRY

1.1 INFORMATION TECHNOLOGY IN INDIA

Information technology in India is an industry consisting of two major components:

IT Services and IT enabled services (ITES) ,more commonly known as Business

Process Outsourcing

Outsourcing as phenomena is not new, if one looks at the outsourcing history, one

realizes that outsourcing, especially BPO has been the means for developing

countries to exploit their competitive advantage in information and technology

communication. Over the last few years the worldwide business process outsourcing

(ITES-BPO) industry has also undergone rapid transformation. Continuing emphasis

on cost cutting in a competitive world is driving companies to look at offshore

outsourcing as a strategic alternative.

IT/ITES sector has emerged as a major contributor to Indian economy. Contribution

to forex reserves, generating employment opportunities, growing prosperity of

burgeoning middleclass, and rise in consumerism – IT/ITES sector is driving the

growth engine in more than one-way.BPO).

The sector has increased its contribution to India's GDP from 1.2% in FY1998 to

7.5% in FY2012 (NASSCOM, 2012) and is expected to contribute to ~ 10 %of

annual GDP by 2020. According to NASSCOM, the sector aggregated revenues of

US$100 billion in FY2012, where export and domestic revenue stood at US$69.1

billion and US$31.7 billion respectively, growing by over 9%.

The IT & ITES industry in India has today become a growth engine for the

economy, contributing substantially to increases in the GDP, urban employment and

exports, to achieve the vision of a powerful and resilient India.

Indian firms, across all other sectors, largely depend on the IT &ITES service

providers to make their business processes efficient and streamlined. Indian

manufacturing sector has the highest IT spending followed by automotive, chemicals

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and consumer products industries. NASSCOM expects the IT services sector in

India to grow by 13-14 per cent in 2013-14 and to touch US$ 225 billion by 2020.

The Tier 1 locations generate 92.4% of the industry revenues. The direct

employment in Tier 1 locations is 1.9million and indirect employment is 7.3million

The Tier 2 and 3 locations account for 7 % of industry revenues .49 delivery centres

opened in Tier 2 and 3 locations as against 25 in Tier 1 over the last one year (2011

to 2012) .The direct employment in Tier 2and 3 locations has risen to 1.7 lakh.

Table 1.1 Top Indian IT Service Providers

Firm Revenues

(in billions) Employees

Fiscal

Year

Head

quarters

Tata Consultancy

Services

$11.57 billion 254,076 2012 Mumbai

Cognizant

Technology

Solutions

$7.05 billion 185,045 2012 Teaneck,

New Jersey

Infosys $6.69 billion 153,761 2012 Bangalore

Wipro $5.73 billion 140,569 2012 Bangalore

HCL Technologies $4.3 billion 85,335 2012 Noida

(Source: Wikipedia, 2013)

The major cities that account for about nearly 90% of the sector's exports are

Bangalore, Chennai, Hyderabad, Delhi, Mumbai and Kolkata. Bangalore is

considered to be the Silicon Valley of India because it is the leading IT exporter

(Rai, 2006). Exports dominate the industry and constitute about 77% of the total

industry revenue. However, the domestic market is also significant with a robust

revenue growth. The industry‘s share of total Indian exports (merchandise plus

services) increased from less than 4% in FY1998 to about 25% in FY2012.

According to Gartner, the "Top Five Indian IT Services Providers" are Tata

Consultancy Services, Infosys, Cognizant, Wipro and HCL Technologies (Gartner,

2012).

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Market Size

India‘s total IT industry‘s (including hardware) share in the global market stands at 7

per cent; in the IT segment the share is 4 per cent while in the ITES space the share

is 2 per cent. The industry is dominated by large integrated players consisting of

both Indian and international service providers. During the year, the share of Indian

providers went up to 65 per cent-70 per cent due to the emerging trend of

monetization of captives.

India's IT and BPO sector exports are expected to grow by 12-14 per cent in FY14 to

touch US$ 84 billion - US$ 87 billion, according to NASSCOM. IT spending in

India is projected to reach US$ 71.5 billion in 2013, an increase of 7.7 per cent as

compared to US$ 66.4 billion projected for 2012, as per a report by Gartner. The

enterprise software market in India is expected to reach US$ 3.92 billion in 2013,

registering a growth of 13.9 per cent over 2012 revenue of US$ 3.45 billion,

according to Gartner (2012).

Investments

Indian IT's core competencies and strengths have placed it on the international

canvas, attracting investments from major countries. Between April 2000 and June

2013, the computer software and hardware sector attracted cumulative foreign direct

investment (FDI) of Rs 53,757.60 crore (US$ 7.97 billion), according to data

released by the Department of Industrial Policy and Promotion (DIPP).

More recently, online retailing, cloud computing and e-commerce are the major

driving forces behind the rapidly increasing growth in the IT industry. Online

shopping has increased with the emergence of internet retailing and e-commerce.

Some of the major investments in Indian IT and ITES sector:

Baring Private Equity Partners Asia plans to buy IT services firm Hexaware

Technologies in a deal estimated at about US$ 400 million

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Cognizant has been selected by the Saudi Electricity Company (SEC) to

develop a comprehensive billing and revenue management solution based on

SAP utilities enterprise software to meet the functional, technical, and

operational requirements of SEC's rapid growth

Prisma Global has acquired majority stake in German technology for about

Rs. 27 crore (US$ 4.00 million). The company will now own the Intellectual

Property (IP) of technologies developed by the German firm

Wipro Ltd has secured a large IT outsourcing contract worth US$ 500 million

from the US-based financial services company Citigroup. Wipro will be

responsible for application development and maintenance, as well as

providing infrastructure management services, for Citi's global operations

Tech Mahindra has signed a five-year agreement with UBS Fund Services

(Luxembourg) (UBS FSL) for its new platform, Tech Mahindra Managed

Data Services (MDS), designed to support asset managers, wealth managers,

investment banks, custodians and administrators. The company‘s Brazilian

subsidiary Complex IT has also signed two deals to deliver enterprise

solutions for oil and gas, and banking sector

1.2 INTRODUCTION TO ITES – BPO INDUSTRY

ITES – BPO – Definition

The term IT enabled Services (ITES) and Business Process Outsourcing (BPO) are

often used inter-changeably. However, strictly speaking, ITES primarily involves

outsourcing of business processes (domestic or offshore) that can only be packaged

with IT. These services are delivered through a platform of telecommunication or

data network or other electronic media. ITES is therefore a subset of BPO.

Although, usually BPO is associated with lower end call center work, there has been

an evolution over the past few years in the outsourcing business to include higher

end knowledge process outsourcing (KPO). This study for convenience uses ITES as

a broad term to include ITES, BPO outsourcing and off shoring.

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Classification of ITES - BPO Services

ITES-BPO can be classified in terms of the geographical reach. Offshore

outsourcing is when the specialist services are contracted outside the company‗s

own country. Nearshore outsourcing is when the services are contracted in the

neighboring country and Onshore outsourcing is when the services are contracted

within the borders of the company‗s own country.

As a further step to Offshore outsourcing , Clients and service providers are

vigorously exploring moving work from Tier 1, 2 3 cities to Tier 4,5,6 towns .

There are predominantly rural areas. The basic advantages of Rural BPOs are lower

overheads in terms of infrastructure ,reduced attrition and lower cost of operations.

This movement is called rural outsourcing. Rural Outsourcing is the concept of

utilizing the talent of professional people who choose to live in rural areas. By using

rural outsourcing, company‗s costs are reduced as people work for lesser wages,

because the cost of living for them is lesser than the people who live in urban areas,

or big cities. This is a great alternative to offshoring as the projects remain in one‗s

own place and still overall spending is reduced.

As of 2012 as per NASSCOM estimates, the BPO industry has directly employed

more than 6000 in about 70-90 rural BPO centers. The sector is infusing approx.

Rs.25 million per month into rural communities. Rural outsourcing has empowered

women .66 % of the workforce are women.

Customer Care Support Centers, which are an integral part of the ITES-BPO

industry, has emerged as the India‗s new sunshine sector. These firms also handle a

host of activities including responding to credit card enquiries, preparation of

invoices, payrolls, cheques, reconciliation of daily accounts, medical transcriptions,

processing applications, billing, and collections ,including queries and complaints

across various service verticals viz., Telecom , Banking and Insurance , Travel ,

Health care and host of other utility services.

The ITES-BPO definition includes both voice – in-bound and out-bound – and non-

voice services, which can include data entry and analysis, payroll generation, benefit

administration and accounting functions.

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Table 1.2 BPO Strategies: Choice of Vertical & Horizontals

(Source: India BPO Forum)

Rationale of ITES – BPO

ITES-BPO covers diverse areas like finance, HR, telecommunication, healthcare,

administration, manufacturing utility services etc. Equipped with technology and

manpower, these services are provided from e-enabled locations. There is a

substantial enhancement in service standards and radical reduction in costs. The

ITES-BPO processes migrated to India brings about a saving of around 40-60% of

the cost (NASSCOM, 2002, 2004, 2006). Cost saving may vary from industry to

industry and country to country, but most expert estimates ranges between 30-60% .

The key source of India‗s advantage lies in the labor cost differential (NASSCOM,

2003) and the advancements in software technology along with the availability of a

large pool of well-trained professionals who can speak fluent English (Chengappa &

Goyal, 2002; and Ramchandran & Voleti, 2004). The developments in the

Insurance Telecom Banking & Finance Professional Services Utility Services

Premium Processing Billing Management Invoice Proceesing / Credit

Receivable / Payables

Management ,

Reconciliations Revenue Accounting

Business

AdministrationClaims Policy Management

, Transcription Services New Order Management Trade Finance

Data Entry / Data Base

Management

Data Entry / Data Base

Management

Marketing

Program

Management

Programmes to increase

share of w allet

Upsell / Crosssell

Programmes CRM / Data Analytics

Surveys / Data synthesis.

Industry analysis

Upsell / Cross Sell . CRM

and Loyalty Management

Pension Accounting Expense claims Payroll

Benefits Hotline, Expense

claims

Employee Data Base

Management

Customer Services

A/c Enquiry and

investigation

A/c Enquiry and

investigation Reports and Presentations

Voice / Email / customer

services Customer

Data Base Management

Research and

Knowledge

Services Analysis and Reportings Analysis and Reportings Research & Presentations

Business Research

Reports , Industry Analysis Analysis and Reportings

Customer

Interaction

ManagementCUSTOMER SATISFACTION SURVEYS

BPO STRATEGY

CHOICE OF VERTICALS & HORIZONTALS

BACK OFFICE ACCOUNTING

Finance &

Accounting

HR & Benefits

AdministrationPAYROLL PROCESSING

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supporting infrastructure like telecom and internet has facilitated the process and

contributed to the growth. The promise of cost savings will always remain

fundamental. However, two important factors namely; adverse currency movements

and wage inflation in India have contributed to reducing the operating margins of

vendors. The Indian currency has significantly appreciated compared to the US

dollar since 2002 — a trend that is likely to continue in the near future. The

inflationary pressures on operating cost are also unlikely to relent; therefore it‗s

prudent to conservatively estimate the effective savings to be in the range of 25-40

% (NASSCOM-McKinsey, 2005).

Although corporations continued to purchase non IT- enabled BPO services, in the

last decade, the IT-enabled services in general and the ITES-BPO services

offshoring in particular, have witnessed the highest growth and attracted the most

attention. IT enabled Services is thus a revolutionary IT offshoot which can look

after a diverse range of outsourcing needs IT-enabled service has made it possible to

carry out services and business process at a different geographical location other

than where the actual market or demand for such services exists. Due to the rapid

progress in the field of internet and telecommunications infrastructure as well as data

processing, these services can now be offered to clients from an offshore facility as

well.

The ITES – BPO as a Value Adding Proposition

The organization‗s belief in value proposition provided by ITES-BPO is

demonstrated by the increasing number of global contracts and alliances focusing on

outsourced service delivery. ITES-BPO suppliers over and above reducing costs,

provide expertise, assist in enhancing clients‘ services, and increase the profits. The

parties involved in a BPO relationship i.e. the client and vendor organizations need

to comprehend mutual goals, capabilities and values before entering into an

outsourcing partnership in order to take advantage of the arrangement (Feeny et al.,

2005).

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The relational view of outsourcing (Dyer and Singh, 1998) emphasize that to achieve

a win-win situation, there is a need to have shared goals and mutual understanding of

processes and decisions between the client and vendor organizations. The key

element of the partnership is in the client understanding the vendor‗s end of the BPO

market. For example, issues such as HR, technology, and training may directly affect

clients‘ operations. The client is in a better position to negotiate contracts, make

strategic decision about ownership, handle competition and build long term

relationship with vendors if he comprehends the offshore BPO markets. For

example, when global companies setup their own captive BPO centers‘ at offshore

locations, the understanding of the dynamics of the BPO industry in such locations

may be immensely valuable.

Impact of Economy and Society

The Indian IT / ITES industry has been one of the great success stories of modern

India. An industry that did not exist two decades ago is now the toast of the nation

and the envy of the world. It is arguably the most global of any Indian industry and

has created international benchmarks for quality, proving to the world and to

ourselves that Indian companies can compete globally and win on quality. It has also

demonstrated what can be achieved by unleashing the power of middle class, first

generation entrepreneurship in India. The overwhelming majority of companies in

this sector were started by entrepreneurs with modest backgrounds and very limited

access to capital. In many ways, this industry has helped create the brand of ―New

India‖ and served as an inspiration for everyone else.

The IT / ITES industry has significantly contributed through socially relevant

products/services and community initiatives in human resource development,

education, employability, health, encouraging women empowerment.

Diversity in Employment

Besides being the largest employer in the organized private sector, the IT/ITES

industry also consciously follows a diverse employment practice and encourages

diversity in the work place in terms of qualification, abilities, gender, skill sets etc.,

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(i) Creating employment opportunities in smaller towns/cities:

By recruiting talent from non-urban towns and rural background, the

industry has reached out to the educated resource pool in these places and

created employment opportunities, which hitherto was largely limited.

Large IT/ITES companies often have 33% to 50% of their employees

coming from non-metro/rural areas

(ii) Opening opportunities for non-technical personnel:

The growing employment opportunities in this sector (both direct and

indirect) are not restricted to the better educated or technically educated

people alone. While 75% of the employment generated through the

indirect route are filled in by candidates who are under graduates/diploma

holders or less educated, companies also help under qualified candidates

to reach a desired skill level by investing in their training and skill up-

gradation.

1.3 CONCEPT AND EVOLUTION OF OUTSOURCING

In the 1970‘ s, the outsourcing of the Information Technology (IT) function started

to happen on a wider scale due to the high cost of processing. In the late 1980‘s, the

information system trade press first coined the term ―outsourcing‖ to describe the

growing dependence by firms on outside providers for on-going IT support. Today,

the term is more widely defined as contracting for any of company‗s recurring

internal functions with outside vendors. The crux is that the vendor rents his skills,

knowledge, technology, service and manpower for an agreed price and period to

perform functions that the client no longer finds it beneficial to perform it himself.

The term outsourcing is used when firms contract manufacturing or services to third

party vendors, either with in the country borders or offshore, who offers specified

service for a particular period of time at an agreed price.

Outsourcing has existed for many decades in manufacturing sector, though

outsourcing in services is a recent phenomenon. Services outsourcing occurs when

organizations contract out services to a third party vendor either domestically or

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offshore. This is also widely known as Business Process Outsourcing (BPO), which

in essence means the delegation of ownership, administration and operation of a

business process or processes to an external service provider. The external service

provider in turn manages and administers the process or processes in adherence to

some measurable performance metrics. These services can be delivered domestically

or from abroad. Outsourcing benefits from the key advantage of specialization. If a

service or component can be more effectively provided by specialist than it can be

handled in-house, then both the entities can focus on what they do best and

continuously enhance performance.

Perspective on Outsourcing

Outsourcing has long been viewed as a make versus buy decision. Traditionally, this

was the relative benefit derived in economic terms on a decision of making a

particular component or service, against buying it. Management theorists believed

that the competitive advantage can be maintained by identifying core and non-core

functions and transferring the non-core functions to a specialist. These discussions

evolved across time and gave birth to the concept of virtual organization, which

essentially meant that the organizations should transfer non-core functions to a

specialist and focus on its core functions. The management literature has often

argued that non-core functions of a firm should be outsourced (e.g., Venkatesan

(1992), Quinn and Hilmer (1994). An organization, it is argued, should primarily

concentrate on its core-competence areas, from which it benefits in terms of cost or a

monopolistic advantage, and outsource the manufacture of other products. The

words of Tom Peters, as quoted by Salvetti and Shell (1995) goes as "do what you

do best, outsource the rest". Porter‘s value chain concept, drawing on industrial-

organization economics, encouraged decision makers to shift their focus from the

cost of component to the profit opportunity associated with the underlying activity

and decide whether the user should be in the business of producing the part/service.

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1.4 CONTEXTUAL FRAMEWORK OF THE INDIAN ITES – BPO

INDUSTRY

The changes in the Indian economy had a critical role to play in the development and

prospering of IT sector and eventual percolation to BPO industry. The mixed

economy approach followed by India up to 1991 did not provide the right

environment to nurture entrepreneurship and competitiveness. The Indian economy

based on a centralized approach hit the bottom in the year 1991. During that time

India experienced a double-digit rate of inflation, decelerated industrial production, a

very high ratio of borrowing to the GNP, and a dismally low level of foreign

exchange reserves. The foreign reserves were barely sufficient to cover the cost of

three weeks‘ imports. The foreign exchange requirements of the Indian government

were met by pledging gold to the Bank of England. The multilateral bodies like

World Bank and the International Monetary Fund (IMF) agreed to bail out India on

the condition that it changed from a regulated regime to a free market economy. This

dawned the new era of liberalization, where the government announced a series of

changes in the economic policies starting with the devaluation of the rupee, followed

by new industrial, fiscal, and trade policies. Control over the banking sector and

foreign investments were eased and public sector underwent major reforms. After

these reforms, the economy has become dynamic and vibrant, and foreign reserves

have gone up significantly (Budhwar et al, 2006). The outsourcing industry had

come to be viewed as the primary engine of the country‗s development over the next

few decades, contributing broadly to GDP growth, employment growth, and poverty

alleviation.

These reforms provided the trajectory for India to launch itself as a superpower in

the ITES-BPO industry in the early twenty-first century. The already established IT

sector and availability of large number of technically literate English speaking

people provided the right ingredients for this growth ( Budhwar et. al, 2006). The

large IT companies assisted the ITES-BPO industry in expanding its base. The IT

giants were able to offer a wide spectrum of services primarily leveraging on the

broad skill sets and global clientele. There has been a remarkable improvement in

the type of services being offered by Indian companies from the simple beginnings.

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Presently, Indian companies are offering a range of services including customer care,

medical transcription, medical billing services and database marketing, to Web/sales

marketing, accounting, tax processing, transaction document management,

telesales/telemarketing, HR hiring and biotech research.

According to NASSCOM Strategic Review 2011, ITES-BPO is now the fastest

growing industry in India. Today, India is considered as the electronic housekeeper

of the world since most of the outsourcing services from India are typically provided

by ITES-BPO. The Indian ITES-BPO industry has matured and grown across time

(Babu, 2004).In just over two decades, the industry has grown to reach nearly US$

59 billion in export revenues, employs around two million employees, and accounts

for approximately 55 percent of the worldwide BPO market (NASSCOM-2011,

Strategic Review). There are around 784 Indian ITES-BPO companies registered

with NASSCOM. The main activities or areas covered by the Indian ITES-BPO

organizations include customer care, such as remote maintenance, help desk, and

sales support; finance and administration, data analysis, medical transcription,

insurance claim processing, and inventory management; HR and payment services

including payroll, credit-card services, cheque processing, and employee leasing. In

addition, the BPO industry has expanded into engineering and design, animation,

market research, network consultancy and management, remote education, and

content development (i.e., digital content, LAN networks, and application

maintenance). BPO activities, where knowledge processing is required are on the

increase. Some examples of KPO include intellectual property research, legal and

medical research, R&D, analytical services like equity research, information security

services such as risk assessment and management, bioinformatics (for example,

genome sequencing, protein modeling, and toxicology studies) procurement and

global trade (Ramachandran and Voleti, 2004; Ravichandran, 2005; Christopher,

2005).

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1.5 CONTRIBUTION OF ITES – BPO TO THE ECONOMIC GROWTH

IN INDIA

According to a NASSCOM study reviewing the impact of IT-BPO industry over a

decade brought to light the multifold contribution made by the industry on the

various social and economic parameters in India. The Indian ITES-BPO industry has

contributed significantly to Indian economic growth in terms of GDP, foreign

exchange earnings and employment generation (NASSCOM Impact Study, 2010).

The intangible impact, which is equally significant, is the ripple effect created in the

national and international economic space. The industry set the stage to unleash the

hitherto untapped entrepreneurial potential of the middle class Indian and took

Indian excellence to the global market.

In the last two decades, the Indian IT/ITES industry has contributed significantly to

Indian economic growth in terms of GDP, foreign exchange earnings and

employment generation. However, equally significant though not as tangible, has

been the ripple effect it has created on the general economic environment in the

national and international economic space. The industry has been the trigger for

many ―firsts‖ and has contributed not only to unleashing the hitherto untapped

entrepreneurial potential of the middle class Indian but also taking Indian excellence

to the global market.

Direct Contribution to the Indian Economy

The emerging role of ITES-BPO industry in the Indian economy is well established.

ITES-BPO is considered as the fastest growing segment among the services sector,

which in turn fuels the key economic indicators of the country. Some of the

indicators where there is a direct contribution are:

(i) Growing Share of the Country’s GDP:

The sectors contribution to the Indian GDP has continuously increased. It

grew from 1.2% in FY98 to an estimated 7.5 % in FY2012. And is

expected to account for ~ 10% of Indias GDP by 2020. This sector is

expected to chip in with about 14% of the total services sector revenue .

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The BPO industry contribute to 13 % of India‘s total exports and is

expected to account for 18-20 % of total India exports in 2020. The

industry contributed almost INR 15,000 crores in direct taxes

(NASSCOM, Strategic Review, 2011). Additionally, the cascading effect

of the sector‗s operating and capital expenditure was estimated to be

around USD 30 billion, while consumer spending effect from its

employees amounted to INR 76,000 crores in FY2010.

(ii) Growing Exports Boost the Foreign Exchange Reserves:

Exports comprise two third of Indian IT software and services revenue,

with the ITES-BPO share nearly 24 percent. It is one of the most

important channels for bringing foreign currency into the country and

accounted for almost 14 percent of the total Indian exports in FY2010. Its

contribution to Indian exports (merchandise plus services) grew from less

than 4 percent in FY1998 to almost 26 percent in FY2011.

(iii) Generating Employment Opportunities:

Direct employment in the industry is expected to reach nearly 2.8 million

in FY 2012 and indirect job creation is estimated to be at 8.3 million. The

direct jobs provided by the industry have been growing at a CAGR of 26

percent making it the largest employer in the organized private sector of

the country. (NASSCOM, Strategic Review, 2012). The industry has

played an important role in empowering a wide spectrum of human assets.

– Out of the total employed in the industry 76 percent are less than 30

years of age, 4 percent come from economically backward section, over

45 percent of total employee constitute women, 60 percent of companies

offer employment to differently - abled people and 58 percent of total

employed are originally from Tier-2/3 cities (NASSCOM Strategic

Review 2010).

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Indirect Contribution to the Indian Economy

The growth of the IT/ITES sector and its resultant contribution to the economic

growth and development has also resulted in certain wider impacts, which in many

cases have had a rub-off effect and set benchmarks for other sectors of the economy

while boosting the image of India in the global market.

(i) Enhancing The Image Of India In Global Market:

The ITES-BPO industry has played a key role in transforming the image

of India from a slow moving bureaucratic economy to a land of world

class technology, business service providers and innovative entrepreneurs.

Widely traveled Indians have watched with pride as different countries

and people look at India and Indians with hitherto unknown respect and

admiration. The India IT/ITES industry has contributed to what brand

‗India‘ stands for in today‘s global market. Listing of Indian IT/ITES

companies in global stock exchanges, which requires adherence to

stringent global accounting norms, has helped to build a strong brand of

the companies and the sector outside India. Made in India software

products have found widespread use across the world while several Indian

IT/ITES firms have been partnering with high profile global brands and

events

(ii) Education:

There has been an increased spending on educational infrastructure to

meet the ever growing demand, by the government and private players.

ITES-BPO majors are also undertaking training initiatives to improve

student quality.

(iii) Enabling Wealth Creation and Asset Building:

The industry has played an important role not only in wealth creation for

individuals but has also helped in supporting and sustaining extended

households. The NASSCOM survey shows that 77 percent of employees

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support their extended families, while 56 percent are the primary bread

earners of their households. It has also contributed to asset building with

almost 62 percent of the employees owning an automobile, 84 percent

spend a portion towards housing (7 percent invest in real estate) and 42

percent employees are able to save more than 10 percent of their salary.

(iv) Infrastructure and Other Amenities:

IT parks and townships are being built, keeping in line with the

expansion/entry plans of major ITES-BPO companies. The associated

infrastructure roads, housing, retail and entertainment facilities are being

improved or built.

(v) Fuelling Growth of PE/VC Fund:

The information technology sector kick started the Venture Capital (VC)

activity in India and many India-centric funds have been created. Various

other sectors, such as healthcare, manufacturing and financial services

have also benefited as they are able to access this funding source. The

ITES-BPO continues to be the favorite sector and has accounts for ~7 %

of India‘s total FDI in the last 12 years flowing into India. VC/PE firms

have made invested over 12 billion in India in 700 plus deals over the last

12 years (NASSCOM, Strategic Review, 2012).

(vi) Spurring First Generation Entrepreneurship:

Corporate India consisted of either large family owned businesses or

multinational companies till the advent of the IT/ITES industry, and it

was rare to see a first generation entrepreneur. The shift of focus from

physical capital to intellectual capital and the advent of the PE/VC

funding enabled a large number of first generation entrepreneurs with no

wealth to try their hand at starting new enterprises. The demonstrated

success of these entrepreneurs created an aspiration among the middle

class and spurred them to exploit their potential with confidence.

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First generation entrepreneur was a rarity in Corporate India as most of

the business was controlled by large families or multinationals. There was

paradigm shift in this after the advent and growth of ITES- BPO industry.

The shift of focus from physical capital to intellectual capital and the

advent of the PE/VC funding enabled a large number of first generation

entrepreneurs with no capital to try their hand at starting new enterprises.

The demonstrated success of these entrepreneurs gave confidence to the

middle class and spurred them to exploit their potential with confidence.

There were a lot of first-generation entrepreneurs who became billionaires

in the process and the wealth created was distributed to stakeholders

through stock option schemes. The practice of Employee Stock Option

Plan (ESOP), started by the ITES-BPO industry became popular in other

industries as well. This process led to distribution of wealth among

employees and created lot of salaried millionaires.

(vii) Improving the Product/Service Quality Level:

As the ITES-BPO companies were catering to and competing with global

players required them to adopt quality standards. This high quality of

services and products has been the drivers and sustainers of growth in the

industry and has helped in improving the image of India from the typical

low quality mediocre typecast. This has also raised the bar for other

industries as well. Traditionally, India has been exporting low end, low-

technology oriented products like gems, jewelleries and

garments/apparels. With the advent of ITES-BPO industry the world

began to recognize that Indian products and services could also compete

and win against global competitors on quality parameters. India is now

also emerging as a research and development center for some of the large

ITES-BPO companies in the world, which is an acknowledgement of

Indian quality. It is worthwhile to note that 30% of companies worldwide

who have reached Level 5 of Capability Maturity Model Integration

(CMMI) are Indian ITES-BPO firms. Nearly, 75% of Fortune 500 and

50% of Global 2000 corporations source their technology related services

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from India with an increasing number of Multi-national Corporations

(MNC) outlining their investment plans for setting up R&D operations in

India (Palvia, 2005)

(viii) Impact on Employment Practices:

The ITES-BPO industry also consciously follows a diverse employment

practice and encourages diversity in the work place in terms of

qualification, abilities, gender and skill sets. ITES-BPO industry helps

create employment opportunities in smaller towns/cities, promotes

women empowerment and provides employment for differently-abled and

non-technical persons thus creating higher growth opportunities for youth

and the out-of-the-mainstream candidate.

(ix) Additional employment generation:

The indirect employment generated, at the rate of 4 additional jobs

created in the economy for every 1 job created in the sector, is even more

socially relevant as nearly 75% of the workforce employed in those

additional jobs are SSC/HSC or less educated.

(x) Driving growth of other sectors of the economy:

Apart from contributing to the growing income of its direct stakeholders

(promoters, shareholders and employees), the IT/ITES industry has had a

multiplier effect on other sectors of the economy with an output multiplier

of almost 2 through its non-wage operating expenses, capital expenditure

and consumption spending by professionals

(xi) Encouraging balanced regional development:

By gradually spreading their business operations to smaller Tier II/III

cities, the IT sector (besides generating revenue and employment) is also

assisting in improving the supply of talent pool and development of

physical and social infrastructure, either directly by themselves or by

20

spurring the Government to action. Some of the key impact of IT/ITES

sector has been,

i. Increase in registered IT/ITES units – The number of

registered and exporting units has risen steadily showing a

CAGR of 118 and 170% respectively as compared to 98-99.

ii. Employment – Supply of IT professionals, which was higher

than demand till 2004, now have a shortfall of 62,697. Demand

for IT professionals is expected to reach 500,000 by 2013-14

with the corresponding figures on indirect employment being

1,720,000.

iii. Education – While building and expanding capacity of

educational institutes are underway, IT majors are undertaking

training initiatives to improve student quality.

iv. Infrastructure and other amenities – Keeping in line with the

expansion/entry plans of major IT/ITES companies, IT parks

and townships are being built with a corresponding

improvement in other amenities like roads, housing, retail and

entertainment facilities.

(xii) Front runner in practicing good corporate governance:

The industry has been a front runner in practicing good corporate

governance and their commitment to infuse it in their business activities,

have led to creating a positive pressure within the industry, as well as in

other industries, with more and more companies adopting global

standards in corporate governance practices. The major IT/ITES

companies in India have in recent times received national and

international recognition for their corporate governance initiatives.

21

1.6 GROWTH OF INDIAN ITES –BPO INDUSTRY

The Indian IT-BPO industry has evolved significantly over the past few years and

has been a significant growth catalyst for the Indian economy. According to the

recent estimates the Indian -BPO industry crossed the magical figure of US$100

billion in revenues in 2012and is looking to grow at 1-14 % in the near term. Export

revenues for the Indian IT-BPO industry is expected to grow by 18.7 percent and

reach of USD 68.7 billion in FY2013 up from USD 50.1 billion in FY2010.

Figure 1.1 Indian IT-BPO revenue break-up as at 2011 end

According to NASSCOM the key drivers of the growth of the Indian ITES-BPO

industry are discussed below.

(i) Abundant Talent: The demographics are in favor of India as there is large

pool of young population, complemented by an educational infrastructure

which churns out large numbers of English speaking talent. India‗s

graduate outturn has doubled in the last decade and the talent pool is

22

expected to increase by almost 4 million in FY2013. The technical

graduate outturn is expected to number around 7 lacs while non-technical

graduate outturn is expected to cross 3.3 million. While India is ranked

second in terms of the total number of graduates available annually, it has

the largest number of ready-to-hire graduate pool.

(ii) Continued Focus on Quality – India‗s leadership has been sustained by

demonstrated process quality and expertise in service delivery. Moreover,

many Indian ITES-BPO organizations have successfully adopted several

global industry standards such as SEI-CMM, ISO, TQM, Six Sigma

Quality, and COPC. Furthermore, with an increasing requirement for a

secured environment, Indian ITES-BPOs are adopting standards such as

ISO 17799, BS7799, COBIT, and ITSM.

(iii) Sustained Cost Competitiveness (cost of labor, infrastructure cost and

currency exchange rates): According to an Everest study clients have

reported significant cost savings in lines of about 50 -60 percent as

compared to source location. India is capable of achieving this primarily

because it has access to highly skilled and English speaking labor at

relatively lower costs. The productivity levels of the Indian employee

base are also significantly higher. The advantage in cost competitiveness

is further reinforced by having a competitive infrastructure (e.g.

Telecom). This is also when you compare with other competing low-cost

countries such as Philippines, China, East European countries etc.

(iv) World Class Information Security Environment: India provides an info-

secure environment to the clients. This is achieved by individual firm

level efforts and complemented by a comprehensive policy framework

established by Indian authorities. Some of the efforts done in this

direction include strengthening the regulatory framework through

amendments to the IT Act 2000, reinforcing the cyber law initiative,

scaling up the National Skills Registry (NSR) and establishing a self-

regulatory organization.

23

(v) Rapid Growth in Key Business Infrastructure: The reduced cost of

international connectivity and increased service standards has helped the

ITES-BPO industry significantly. With critical business infrastructure

such as telecom and commercial real estate well in place, the government

needed to improve the other supporting infrastructure. STPI infrastructure

available across the country played a dominant role in the emergence and

development of the ITES-BPO industry. The 100 percent tax holiday

extended by the government under the STPI scheme also supported the

extensive growth of this industry.

(vi) Enabling Business Policy and Regulatory Environment: The Indian

government provided an enabling policy environment in the initial years

which acted as the catalyst for growth. Post liberalization, the government

encouraged foreign investments in this industry which not only provided

the fill up in capital but also facilitated the transfer of knowledge and

technology. The software technology parks of India (STPI) policy was

established for promoting the export of software and services from India.

Further in 2005, the Special Economic Zone (SEZ) Act made special

provisions for the IT-BPO industry in order to aid the continuing growth

of the industry. Due to this approach by policy makers the Indian ITES-

BPO industry has benefited by enjoying minimal regulatory and policy

restrictions coupled with a broad range of fiscal and procedural

incentives.

1.7 OPERATIONAL STRUCTURE OF INDIA ITES-BPO INDUSTRY

The Indian ITES-BPO industry can be divided in six broad categories.

i. Captive Units: These are units set up by MNCs and domestic companies to

undertake work for the parent company.

ii. Third-Party Vendors: These are independently owned units that execute

transactions and processes for multiple clients.

24

iii. Joint Ventures: This unit is setup in collaboration between an international

BPO company and Indian BPO company partner.

iv. Indian IT Software Companies owned: These units are created and added to

the service portfolio of Indian software companies ( Progeon and Spectramind)

v. Global BPO Players: These are global companies who have set up operations

in India (for example, Convergys, EDS, Accenture, Aegis, EXL, Genpact and

WNS).

vi. Global Consultancies: Global companies (such as Accenture), who have been

advising their clients on outsourcing are now leveraging this experience into

providing actual BPO service (Economist Intelligence Unit, 2002).

The most common form of ITES-BPO operating in India is that of either Captive

Units or the Third-Party Vendors (Budhwar et. al., 2006).As proposed by Deery and

Kinnie (2002) three ITES-BPO working models can be identified as: mass

production model which prioritizes call volumes, the professional services model

which seeks to provide high quality individualized services and, in between, the

hybrid mass customization model sharing features of both. The units operate on the

following models

Company owned Company operated model

Company owned Service Partner operated model

Service Partner owned Service Partner operated model.

1.8 ISSUES AND CHALLENGES CONFRONTED BY INDIAN ITES –

BPO COMPANIES

Listed below are the major issues and challenges that the Indian ITES-BPO

companies face today in their operations

High Level of Attrition

Even though India enjoys a large talent pool in terms of students passing out

from graduation and engineering schools, they are not typically industry ready‘

and not equipped with the skill sets that can be useful to the companies. This

25

means that while there is plenty of supply at the entry level (voice processes), but

there are huge demand-supply gaps in the middle management and senior

management levels. This has led to increased levels of poaching and attrition

cases. Presently, the average attrition rate faced by this industry is somewhere

around 30-35% as stated by NASSCOM. An employee in the BPO industry

generally ends up changing four to five jobs in a period of four to five years. The

attrition rate in non-voice processes is significantly lower than voice processes.

In the voice segment it is somewhere around 35-40 percent and in case of non-

voice or data based activity is around 10%.

Lack of Career Commitment

The other area of concern for HR managers is that most employees working in a

call centers or ITES-BPO setup do not see this industry as a serious or long-term

career option. This was the outcome of a recent study conducted by NFO India,

part of NFO World Group, and People Equity Consulting, a Bangalore-based HR

consultancy.

Nature of the Job

The work processes are monotonous and do not provide a challenging work

environment making it difficult to sustain interest in the long term. Employees

work in isolation where work is de-skilled and allocated automatically using

scheduling systems and is monitored and controlled by the management. The

jobs in ITES-BPO are typically characterized as 'dead-end' and offer few career

prospects (Deery and Kinnie, 2002).

Mismatch of Expectations

Expectations mismatch leads to higher attrition, this is partly due to the

perceptions created in the general public with respect to the career growth, type

of work, compensations offered, competition, etc

26

Communication Issue

Experts say that lack of effective communication is another contentious issue and

this problem emerges due to large number of employees being part of the company.

The absence of regular and effective two-way communication between agents, their

immediate team managers and the senior management is one of the reasons for high

attrition rates in the industry.

Generating Motivation and Increasing Efficiency

It becomes difficult to keep the motivation level of the employees considering the

fact that the job is repetitive and routine in many ITES-BPO operations. This is a

huge challenge for HR managers. This is particularly important considering the fact

that an important part of India's value proposition as the outsourcing destination is

based on productivity and quality - factors that critically depend on motivation.

High Training Costs

The ITES-BPO companies usually impart three types of training; soft skills training,

Pre-process training, Product, process and Helpdesk training. Start-ups will face a

higher training cost initially as they need to outsource the voice/accent and soft skills

training. The Process training in the start-ups is usually done by process trainers

from the customers‘ side and the BPO Company bears the expenses. However, on

reaching a stable growth stage, companies are able to build up a resource base and

avoid outsourcing. The training cost has grown by 45 percent as against total cost of

one employee, which has grown by 190 percent according to NASSCOM reports.

The Indian IT-BPO companies spend nearly INR 6,450 crore on training their

employees. (NASSCOM, Impact Study, 2010). The HR managers have to

continuously evolve career paths, motivate their employees and create a culture of

oneness, which will act as a retention tool in future.

1.9 PRACTICES ADOPTED BY IT/ITES COMPANIES

The fast growing IT/ITES industry has been struggling with several issues

concerning availability and quality of talent. The industry has responded to this issue

by evolving sustainable and innovative solutions. Since the educational institutes

27

lagged behind in supplying the requisite number of trained people required for the

industry and their curriculum could not keep pace with the changing trends in

technology, the IT/ITES industry themselves came forward and made massive in-

house training investments, which helped them power their growth and compete at

par with international giants in the global market.

The industry has also gone beyond and collaborated with the government, private

educational institutions as well as industry associations to contribute towards

capacity building, skill development and continual training of existing and potential

employees to enhance their capabilities and competitive skills. The industry is also

making efforts to ensure that employees are provided a stimulating and healthy

working environment for improving their level of satisfaction and productivity.

The following are some of the best practices followed by Indian ITES industry:

(i) Promoting women empowerment:

The growing trend in the number of women employed in this sector indicates

that not only does the industry offer equal opportunity to women but also has

in place proactive and sensitive mechanisms which counter the common

causes that discourage women from pursuing employment in the corporate

sector. Women employment in the industry is set to rise to 45% by 2010 from

the current 30%

(ii) Providing high growth opportunities for the youth:

The industry has created excellent employment and fast track growth

opportunities for the younger section of the population and is likely to

become one of the largest employers‘ of a growing ‗young population‘ of

India. The overall median age group of the sector is 28.9 years with 70% of

the workforce being in the age-group 26-35 years

(iii) Training of workforce:

The industry has played a pioneering and pro-active role in developing the

talent pool in the country by forging links with the academia and the

28

Government. It has not restricted its efforts to developing its own employees

but is also investing in raising the overall standard of education. The industry

has collaborated with academic institutions for bridging the gap between the

education imparted to students and the actual requirements in the job

scenario. Collaborations have been in the areas of curriculum development

and course design, training for students. NASSCOM has been involved in

developing standards for training and recruitment at entry level to make

students more employable. These training address both the technical and soft

skills training needs. Companies on an average conduct 163 training

programmes annually; with almost 80% spend on training entry level hires.

(iv) Promoting higher education:

The industry has emphasized upon developing its workforce by encouraging

and aiding up-gradation of skills and abilities. It has done so through various

means including provision of scholarships as well as training and

development activities. Many companies have tie-ups with educational

institutes for supporting the higher education needs of their employees and

provide full/partial scholarships thus supporting their career goals.

NASSCOM has been involved in building the talent base for high end skills

in areas like multimedia convergence and bio-informatics while working with

the Ministry to develop institutes that produce highly specialized

professionals.

(v) Improving the work environment:

IT/ITES companies have been taking the lead in providing a conducive work

environment to employees leading to increased productivity and better

morale. The facilities provided focus on health of employees by providing

gymnasium; yoga/meditation facilities as well as their safety through pick

and drop facilities. To cater to the need of providing a work-life balance,

particularly to women employees, the companies offer flexible working hours

and work from home option.

29

1.10 FUTURE OUTLOOK

The beginning of the new decade heralds the slow, but steady end of the worst

recession in the past 60 years. Global GDP, after declining by 1.1 per cent in 2009,

is has increased by 3.1 per cent in 2010, and 4.2 per cent in 2011, with developing

economies growing thrice as fast as the developed economies. Improving economic

conditions signifying return of consumer confidence and renewal of business

growth, is expected to drive IT spending going forward. IT services has grown by

2.4 per cent in 2010, and 4.2 per cent in 2011 as companies coming out of recession

harness the need for information technology to create competitive advantage.

Organizations now recognize IT‘s contribution to economic performance extending

beyond managing expenditures.

They expect IT to play a role in reducing enterprise costs, not merely with cost

cutting but by changing business processes, workforce practices and information

use. Government IT spending continues to rise across the world, focusing on

infrastructure and security. Growth in outsourcing is expected to supersede overall

IT spend reaffirming its potential to not only support short term, tactical goals of

cost savings, but also long term advantages of increased competitiveness,

efficiencies and access to emerging markets.

India has ample supply of talent, which is largely trainable in nature, not

employable. This leads to incremental training costs and increased downtime for the

industry, which is challenging keeping in mind quality talent availability in

competing countries. Currently, over 90 per cent of total revenues are generated

from the seven Tier-I locations, which are nearing peak capacities in terms of

infrastructure support.

India has to quickly develop other delivery locations to achieve its 2020 vision.

There are concerns around security – both physical and data related, in service

delivery, which would need to be addressed. Currency fluctuations have also dented

India‘s competitiveness, and steps need to be taken to address India‘s increased risk

perception. A key impact of the recession has been the rise of protectionist

30

sentiments in major markets for the industry. The impending discontinuation of

fiscal incentives and frequent changes in fiscal regulations are making the business

environment more challenging. Last but not the least, a number of new outsourcing

destinations seeking to emulate India‘s success have emerged, offering multiple

fiscal and training incentives, making them cost competitive.

Concerted action by all stakeholders around below parameters is required to capture

the opportunities and mitigate future risks. In doing so, stakeholders (industry,

NASSCOM and the government) will need to act together in an unprecedented

manner:

(i) Catalysing growth beyond today’s core markets:

Breaking ground in new markets (verticals, geographies, segments) through

reinvented offerings and business models.

(ii) Establishing India as a trusted global hub for professional services:

Building a conducive business environment (improved infrastructure, public

services, corporate governance, and security) and a strong global image.

(iii) Harnessing ICT for inclusive growth:

Stimulating inclusion of citizens by enabling technology led solutions in

healthcare, financial services, education and public services, leading to

increased connectivity, improved soft infrastructure, and a balanced regional

development.

(iv) Developing a high calibre talent pool:

Bridging a crucial talent gap by addressing gaps in tertiary education, at the

same time fuelling efforts to upgrade curriculum, faculty and training

methodologies.

(v) Building a pre-eminent innovation hub in India:

Encouraging intellectual property, establishing distinctive capabilities and

fuelling entrepreneurship. India‘s technology and business services industry

31

has flourished in the last decade. A bright future lies ahead and the industry

has much to look forward to, with the potential to quadruple its revenues over

the next decade.

India is one of the fastest growing economies of the world crossing US$1 trillion.

Majority of the fortune 500 and Global 2000 corporations are sourcing IT – ITES

from India. Over the last two – three years, a number of reputed companies in

electronic / IT / Telecom hardware manufacturing like Nokia, Motorola, Foxconn,

Flextronics, Aspocomp, Samsung, LG, Ekoteq, Ericsson, Alcatel, Tessolve and Dell

have either setup their units or are in the process of investing in the country. India is

rapidly becoming an R & D hub. All the top 10 global fables design companies have

operations in India and 17 of the top 25 semiconductor Companies worldwide have a

strong presence in India. IT- ITES is estimated to helped create an additional 60 lakh

job opportunities through direct and induced employment in telecom, power,

construction facility management, IT transportation, catering and other services.

1.11 INDIA AS ITES HUB

Over the past decade, the Information Technology (IT) industry has become one of

the fastest growing industries in India, propelled by exports. The key segments that

have contributed significantly (96 percent of total) to the industry's exports include -

Software and services (IT services) and IT-enabled services (ITES) i.e. business

services. Over a period of time, India has established itself as a preferred global

sourcing base in these segments and they are expected to continue to fuel growth in

the future. Exports contribute significantly to the Indian IT industry's revenues with

key segments being IT services and software and ITES- BPO. Indian IT and ITES

companies have created global delivery models (onsite, near shore, offshore),

entered into long term engagements with customers, expanded their portfolio of

services offerings, built scale, extended service propositions beyond cost savings to

quality and innovation, evolved their pricing models and have tried to find

sustainable solutions to various issues such as risk management, human capital

attraction and retention and cost management.

32

Demand dynamics

A key demand driver for the Indian IT services and ITES industry has been the

changing global business landscape which has exerted performance pressures on

multinational enterprises. While companies initially sourced from the Indian IT and

ITES industry for cost, quality and enhanced competitiveness have induced them to

continue and expand. Some companies have also viewed sourcing differently

(beyond cost and quality) and achieved non-traditional benefits of sourcing from

India.

Sourcing models

A wide range of sourcing models have evolved for sourcing IT and ITES services

from India based on the required capabilities as well as risk profiles. There is an

increasing trend towards a global delivery model (higher proportion of offshore in

the onsite - near shore - offshore mix) as well as a preference for captives and co-

sourcing arrangements, though mature captives are gradually tending towards

becoming third party service providers.

In evaluating third party service providers the following evaluation factors need to

be borne in mind as shown in table 1.3.

33

Table 1.3 Factors favouring India as the preferred destination for ITES

S

NO

Parameters Weigh

t age

Partner

3

Criticality

1 Cost – value 20% Vital

1.1 Cost per transaction / seat /FTE 5

1.2 Payment terms (from Invoice date) 5

1.3 Additional Charges (if any) 5

1.4 Termination Clause (in days) 5

2 Scalability 10% Vital

2.1 Infrastructure for uninterrupted service 2

2.2 Provisioning for additional capacity 2

2.3 Infrastructure for additional capacity

provisioning

2

2.4 List of circles where the Partner can provide

service

2

2.5 Financial Strengths (Turnover, Assets etc) 2

3 Technical Compatibility 10% Vital

3.1 Voice Connectivity for Call delivery 2

3.2 Data Connectivity for access to CRM and

Other portals

2

3.3 ACD/ PBX technology with Compatibility 2

3.4 Voice Logger with businessCompatibility 2

3.5 Reporting tools with Compatibility 2

4 Industry Experience 5% Essential

4.1 Experience in respective domains 3

4.2 List of circles in which franchisee currently

operates

2

5 Language 10% Vital

5.1 Availability of Multi-lingual Manpower 5

5.2 Availability for Voice Process 3

5.3 Availability for Non-Voice Process 2

6 Data security 7% Vital

6.1 Measures to ensure data security 4

6.2 Data security solutions – Anti Virus solutions 3

7 Existing relationship 10% Desirable

7.1 Tenure of association with Majorplayers 5

7.2 Performance of processes currently handled

by existing Partner

5

34

8 Credentials 5% Desirable

8.1 COPC Certification 1

8.2 ISO 9000, ISO 27001 1

8.3 Six Sigma 1

8.4 RBNQA 1

8.5 NASSCOM Membership 1

9 Statutory Compliance 10% Vital

9.1 PAN Card 1

9.2 Service Tax Registration 3

9.3 PF Registration 2

9.4 ESI Registration 2

9.5 MOA/ Partnership deed 2

10 Regulatory Compliance 8% Vital

10.

1

OSP License 3

10.

2

Telemarketing License 3

10.

3

STPI Debonding Certificate 1

10.

4

Authorized Signatory Resolution 1

11 Ramp Up/ Down Capability 5% Desirable

11.

1

Deployment of additional capacity 2

11.

2

Time Required capacity expansion 2

11.

3

Time Required for ramp down 1

Total 100%

(Source: NASSCOM)

The India advantage

Various country comparison studies have established the attractiveness of the Indian

IT services and ITES industry. The key attributes that have enabled India to establish

itself as a preferred sourcing base include:

(i) Vast Access to skill base

o Large pool of resources for IT and ITES operations - 14 million

graduates, 1 million technical resources, one of the largest English

speaking manpower in the world.

35

o Availability of quality delivery management talent from international

banks and consulting firms.

o In the future, while the increasing demand for resources may put

pressure on the resource base, initiatives are currently underway to

enhance the supply of quality human capital in the country.

(ii) Strong quality orientation

o ISO9001, COPC.6 sigma are some of the established quality

initiatives.

o 90 out of the world's 117 SEI CMM Level 5 companies are from

India.

(iii) Availability of high quality infrastructure

o Concerted efforts to provide dedicated, international quality, cost

effective real estate at software parks, Special Economic Zones (SEZ)

and knowledge sector industrial estates.

o Availability of high quality international and national dedicated

telecom infrastructure with high level of redundancies insulating

centres from Public Switched Telephone Network (PSTN) quality.

o Availability of multiple levels of backups providing insulation from

public system issues, if any.

(iv) Cost advantage

The cost impact of sourcing from the Indian IT and ITES industry can be

significant due to the lower wages and lower cost of living. While the

increasing demand for resources is gradually adding pressure on labour

costs, companies within the industry are attempting to sustain cost,

competitiveness through appropriate location choices and revamped

human resource management practices.

(v) Enabling policy environment

The Government of India is taking proactive measures to encourage

investments in this sector. Significant measures and incentives include a

liberalized FDI regime, single-window clearance facility, income tax

holiday and customs duty exemptions. State governments too are

36

demonstrating a proactive approach towards attracting and facilitating

investments and are providing support for the development of specialized

infrastructure, focusing on development of a larger base of cities/towns to

meet the needs of the industry and undertaking measures to continually

enhance the supply and quality of manpower.

(vi) Mature industry eco-system

The support infrastructure for the Indian IT and ITES industry which

includes specialized firms for functions such as recruitment, training,

property management, security, fleet management, book-keeping and

payroll as well as industry associations has evolved over the years.

(vii) Commitment to address security concerns

Indian companies as well as the government have been active in adhering

to international security standards such as ISO 17799, BS7799, COBIT

and ITSM. The required legal framework has been laid down by the

government and a revamp of the country's Information Technology Act,

2000 is expected in the near future. The revised legal framework is likely

to include provisions against a new range of computer crimes to cover

areas like privacy, information protection and harming computer systems

through viruses.

A majority of IT / ITES activity in India is concentrated in seven cities / clusters in

India. With concerted development efforts of a wider base of cities / towns, the

geographical spread of IT / ITES activity is gradually expanding to cover cities such

as Ahmadabad, Jaipur, Coimbatore, Kochi, Trivandrum, Chandigarh, Mysore,

Mangalore, Madurai and Bhubhaneswar. Various companies have chosen to locate

their operations in one or more of these seven clusters based on parameters such as:

o Leveraging local experience and assets

o Spreading to reach right skills at right costs

o Business continuity requirements

37

Table 1.4 IT Clusters and Key Companies

Information

Technology Clusters

City / Cluster

Key companies in the location

(Illustrative and not exhaustive)

Mumbai / Navi Mumbai /

Thane

ABN Amro, Morgan Stanley, Citigroup, Accenture, Tata

Consultancy Services, World Network Services (WNS)

(Gurgaon / New Delhi /

Noida)

Genpact (formerly GE Capital International Services),

Sapient, HCL Technologies, American Express,

McKinsey research centre, E-Funds Corporation

Bangalore JP Morgan, Goldman Sachs, Siemens, Infosys, Wipro,

Tata Consultancy Services, Cognizant Technology

Services, Genpact (formerly GE Capital International

Services)

Chennai Citigroup, Standard Chartered (Scope International),

World Bank, Ford, Hewlett Packard, AIG, Infosys, Tata

Consultancy Services, Cognizant Technology Services

Hyderabad /

Secunderabad

HSBC, Microsoft, Franklin Templeton, Infosys, Wipro,

Tata consultancy services. Cognizant Technology

Services, Genpact (formerly GE Capital International

Services)

Pune World Network Services, Cognizant Technology

Services, HSBC, Veritas, Sybase, AXA, Mellon

Financial

Kolkata HSBC, Genpact (formerly GE Capital International

Services), IBM, Infosys, Tata consultancy services,

Cognizant Technology Services

(Source: Wikipedia, 2012)

38

Location selection is a very key criteria for starting up, growing and sustaining the

BPO business. The matrix shown in Table 1.5 is ideal to zero-down on a location

based on type of activity involved. Figure 1.2 shown below depicts the five stage

model of a typical BPO.

Table 1.5 Key Location Factors

S No Parameters Criticality Weightage Sub

weightage Remarks

1

Manpower - 40% -

Availability Vital 16% 40% Ease of availability

Skilled Vital 2% 5% Availability of educated and

trained manpower

Multi-Lingual Essential 8% 20%

Employable base must be

conversant in 2 or more

languages

Voice Essential 4% 10% Employable base must have

good voice/telephone skills

Non-voice Desirable 2% 5% Employable base must have

good analytical skills

Attrition rates Desirable 8% 20% Low attrition rates

2

Infrastructure - 20% - -

Land/ Building

availability Vital 6% 30%

Readily available property

options

Property

readiness Vital 3% 15% Ready to move in immediately

Public Transport

facility Essential 2% 10%

Readily available means of

transport

Telecom

Connectivity Vital 6% 30% Closeness to ILT

Power Essential 3% 15% Access to uninterrupted power/

backup sources

3

Cost

Competitiveness - 30% - -

Remuneration Desirable 18% 60% Minimum Wages, Employee

salaries, Per capita income

Rentals Essential 12% 40% Low Capex/ Opex, Taxation,

Incentives/ Concessions

4 Government

Support Desirable 5% 100% Stability

5 Current/ Other

BPOs existing Desirable 5% 100%

Access to trained/ skilled

manpower.

39

Fig

ure

1.2

Fiv

e S

tage

Ap

pro

ach

to

BP

O

40

1.12 CONCLUSION

The information technology (IT) and information technology enabled services

(ITES) industry has been one of the key driving forces fuelling India‗s economic

growth. IT is one of the world‗s fastest growing economic activities, which

envisages easier flow of information at various levels in the desired pattern. The

Information Technology enabled Services (ITES) sector has not only changed the

way the world looks at India but has also made significant contributions to the

Indian economy. IT enabled Services (ITES), also called web enabled services or

remote services or Tele-working, covers the entire gamut of operations which

exploit information technology for improving efficiency of an organization. These

services provide a wide range of career options that include opportunities in call

Centre, medical transcription, medical billing and coding, back office operations;

revenue claims processing, legal databases, content development, payrolls, logistics

management, GIS (Geographical Information System), HR services, web services

etc.

Information Technology (IT) is defined as the design, development, implementation

and management of computer-based information systems, particularly software

applications and computer hardware. Today, it has grown to cover most aspects of

computing and technology. The largest firms globally include IBM, HP, Dell and

Microsoft.

The Information Technology-Enabled Services (ITES) industry provides services

that are delivered over telecom or data network to a range of external business areas.

Examples of such business process outsourcing (BPO) include customer service,

web-content development, back office management and network consultancy etc.

India is set to become the most popular destination for BPO operations. BPO

industry in India is driving the country‘s Socio Economic Transformation. The

industry is inventing, reinventing and transforming in a short span. BPO industry is

the next Industry driver and putting India on the world map. A large number of

41

multinational companies are outsourcing their business processes offshore to Indian

BPO companies. Theoretical literature mentions several advantages of business

process outsourcing. India has been one of the first nations to step into the call centre

outsourcing industry. Global organizations have already outsourced call centres to

India and have found India to be an ideal outsourcing provider. Today, some of the

world‘s global giants have a base in India, from where they provide customer

support services to their worldwide customers on a 24x7x365 days basis.

* * *

42

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Software and Service Companies.

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Rai, Saritha (2006),"Is the Next Silicon Valley Taking Root in Bangalore?‖ New

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Ramchandran, Kumar and Sudhir Voleti.(2004), "Business Process Outsourcing

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OTHER SOURCES: REPORTS AND WEB LINKS

Indian IT Industry: NASSCOM Analysis

Indian ITES - BPO Industry: NASSCOM Analysis

India's IT-BPO performance in 2006, NASSCOM Strategic review 2007.

India BPO Forum

Key highlights of the NASSCOM.IDC study on the domestic services (IT-

ITES) Market opportunity

McKinsey. Highlights of the NASSCOM, McKinsey Study Report on the IT

Enabled Service Segment. New Delhi: National Association of Software and

Service Companies, 1999.

NASSCOM, Nasscom's Handbook: IT Enabled Services Background and

Reference Resource. New Delhi: National Association of Software and

Service Companies, 2001.

NASSCOM, strategic review 2007

NASSCOM, strategic review 2008

o www.ibef.org

44

o www.economictimes.com

o www.wikipedia.com

o www.nasscom.in

o www.indiabpoforum.in

o www.scholar.google.com