BIG SHAKEOUT IN INDIAN OUTSOURCING MARKET PREDICTED
(7 November 2003)

Newcomers to the Indian outsourcing market are utilising aggressive strategies, such as significantly discounting services, to grab a piece of the $400 million market. However, a new report by independent market analyst Datamonitor, says this is resulting in shrinking margins and questions as to who will survive the inevitable shakeout. Datamonitor predicts that in five years, the highly fragmented Indian outsourcing marketplace of today will be dominated by large Indian IT conglomerates, smaller Indian specialists and large Western multinational companies (MNCs) using India as a base for the business process outsourcing (BPO) practices.

During the dot com boom, the labour seller's market caused both contact centre agent salaries and attrition rates in Western locations to skyrocket. Enter Indian outsourcers. Indian agents earn an estimated $2700 a year, and earn 80% less than average Western agents salaries. Indian contact centres have access to over 250 million English-speakers and more importantly a pool of 15 million Indian college graduates a year. Indian contact centre staff turnover rates were at around 25% or less compared to 90% in American contact centres for example. In addition to auxiliary training provided to all agents, call centres in the region are also well equipped with the latest technology.

MAJOR CALL CENTRE & BPO PLAYERS

According to Datamonitor estimates, there are currently over 250 contact centres and 51,000 agent positions in India devoted to offshore outsourcing. As additional capacity is needed, the number of contact centres and agent positions will grow at a compound annual growth rate (CAGR) of 9% and 19% respectively to reach 387 contact centers and 121,000 agent positions by 2007.

However Datamonitor expects the growth in both outsourcing contact centers and agent positions to begin to slow in 2005 as a result of an inevitable industry vendor shakeout that will be the consequence of current oversupply and shrinking margins ensuing from downward competitive pressures on pricing. Poaching of agents from the local outsourcers is increasing both attrition rates and agent salaries for outsourcers.

COMPETITION IN LOCAL INDIAN MARKET

Indian outsourcers as well as the Indian government have done a remarkable job getting the message out about the benefits of outsourcing to India. So well, in fact, that to the delight of the government and the chagrin of local Indian outsourcers, an increasing number of Western companies are taking advantage of the benefits that India offers, not through outsourcing, but through direct capital investment or via strong partnerships with onshore outsourcing service providers which resell Indian capacity.

In a matter of a few months, what used to be an Indian contact centre market dominated by third party outsourcers, has seen the rush of Western MNCs locating their own facilities in India. Seeking to shorten their time to market, they have engaged in the poaching of agents from the local outsourcers, resulting in climbing attrition rates and agent salaries for outsourcers. In addition, multinational consulting companies, such as Accenture, with BPO dollar signs in their eyes have begun to set up their own centers in India, increasing the number of India-based centers competing for Indian labour and Western contracts.

Brian Huff, lead analyst of Datamonitor's call centre research program comments: "Over the past year, Indian outsourcers, Spectramind, TCS and TransWorks have all been acquired by larger IT firms. Onshore outsourcers with an Indian presence or Indian vendors that are divisions of larger IT companies provide a greater sense of viability than stand-alone vendors without access to capital pools large enough to maintain survival during the Indian offshore outsourcing price wars. To effectively compete against multinational outsourcers, Indian outsourcers must establish a global operational presence. Those without the resources to expand their global reach must become vertical specialists. A multinational onshore vendor, such as TeleTech, with centers in the US, Canada, Mexico and India is much better positioned than an offshore vendor with operations located solely in India to win a contract from a large bank, such as Citigroup, looking to offer 24-hour customer service to its global customer base."

ABOUT THE REPORT

Datamonitor's report, "Indian Contact Center Outsourcing: Surviving the Shakeout," forecasts the Indian outsourced contact centre market, given by all call centers and agent positions. It provides key data segmentation and analysis of activity outsourced to India by business function, communication media and vertical market. The report gives competitive analysis of key Indian outsourcing players, including profiles of leading Indian outsourcers, such as Wipro, Infosys and GTL/Global. Actionable recommendations for both outsourcers and technology vendors pitching to outsourcers are included. The full report can be purchased for $2,695.

Click here to visit the Datamonitor website.

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