Standardisation of services

The maturing of the global outsourcing market will lead to a harmonisation of BPO service standards, particularly in back-office processes like accounts and mortgage processing, claims handling, policy administration, cards and payments processing. This trend will be driven by consolidation of the third party Indian providers, each processing greater volumes of work at lower margins. The consolidation process has already begun; Evalueserve believes that of the 400 Indian BPO firms, the top 15 already have 60-70% of the market.

And as the Indian merger and acquisition fervour is likely to continue its relentless pace, there will be rationalisation of the outsourcing service providers, resulting in the BPO environment becoming dominated by 10 giant, global service providers, supported by a smattering of niche specialist operators. As part of the standardisation of BPO services, long-term outsourcing contracts will no longer be the norm, as most outsourcing organisations will require shorter contracts for more specific activities, perhaps based around spikes in demand following marketing campaigns, for example. The industry will have developed to the point that organisations will be able to have ‘just-in-time’ services, delivered remotely, or locally, by a BPO provider.

In the future, hardly any back office processes will be carried out in house. Just as it has become natural to outsource catering and cleaning services, administrative processes that can be broken down into logical components will generally be outsourced. These standardised services will be provided in mass volume by a handful of global Indian operators with large hubs in India, but supported by their subsidiary delivery centres worldwide. Thus delivering the right outsourcing solution in the right location for the client’s specific process requirements.

Higher Value outsourcing

There will also be enormous growth in higher value, more complex work going to India. This section of the outsourcing industry has come to be known as Knowledge Process Outsourcing (KPO). Research from Frost & Sullivan shows that the Indian KPO industry generated $405.2 million in 2005, representing a 59% increase on the previous year, and could be worth $5.5 billion by 2019. Retail banks and insurers are starting to offshore higher value work, including financial analysis, statutory and regulatory reporting, and risk assessment.

India is the natural home for knowledge process outsourcing due to its pool of highly educated graduates who can carry out complex analysis and reporting at a fraction of the cost of carrying out such processes in western countries. The banks are making huge savings in labour – Wall Street banks pay their Indian staff about $20 an hour, compared to about $100 an hour for juniors in the US.

There is also a recent trend for legal or para-legal work to be carried out in India. With its similar legal system, India is the natural home for processes such as patent applications, legal research, conveyancing and contract drafting, as well as litigation support. A fast growing area is ‘e-discovery’ where Indian lawyers analyse and audit electronic communications. As well as the major UK and US law firms outsourcing some of their support activities, there are also opportunities to develop legal processing work with the specialist international legal research houses and publishing firms.

Global spending on legal services is estimated to be around $250 billion, with the US accounting for more than two-thirds of the market. The breadth of the potential legal services that could be outsourced indicates that the market potential for the US alone is in the region of $3-4 billion.

The accounting sector is also starting to see the benefit of outsourcing to India, with a trickle of work moving there, and there are examples of other highly entrepreneurial KPO work that could have huge potential. Outsourced training is also a growth area, with Indian firms providing online tutoring for students in the US and the UK.

Medical outsourcing is another massive potential growth area, with estimates that subcontracting work from the National Health Service could earn India’s economy more than $1bn per year. Well trained Indian surgeons, working in new highly equipped hospitals can carry out standard operations at a fraction of the UK cost. As a back office process, medical imaging from major US and UK hospitals is now frequently done by Indian specialists.

This model of global delivery of outsourced services will become the new norm for outsourcing and with its established lead in the world market for outsourced services, India will continue to dominate. However, with that global dominance, Indian companies must be wary of complacency.

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