Outsourcing growth expectations for 2008
posted in Outsourcing to India |The weakening of the US Dollar has rendered a shock to the outsourcing industry in 2007. Indian companies were especially hit as the Rupee appreciated by 10.9% in the last 12 months (14.2% in the last 15 months) against the US Dollar. Investors, analysts and the media have been speculating about the impact of margin pressures, risk of business loss in the US, further Rupee appreciation coupled with domestic inflation, etc.
Interestingly, despite worries on the margin front, outsourcing growth expectations stand tall. Companies are gearing up to face the year with aggressive plans coupled with some innovative strategies to fight margin pressures. Either way, 2008 promises to provide plenty of action for the outsourcing industry.
Analysts have put together a list of key trends that we believe will make an impact in 2008.
Smaller BPOs will be badly hit.
Smaller BPOs with low-end, commoditized services are worst affected by margin pressures. These players will find it difficult to raise prices, and will be unable to pay enough to retain the best talent. Small Indian vendors will be forced to innovate with a focus on “differentiating” their services. In 2008, this will become critical not just for sustaining competitiveness but also for the very survival of smaller vendors. The vendors that succeed in differentiating their offerings and thereby climb higher up the value chain, will see new growth or exit options. The others, who are unable to get out of the low-price, low-cost game, will start fading away from the competitive landscape.
Tier-II cities will become hot spots.
The cost and talent pressures will drive vendors to smaller cities at a faster rate. Proximity/connectivity to larger cities and good education infrastructure seem to be guiding the discovery of Tier II destinations like Udaipur, Bhopal, Vishakhapatnam, Nagpur, Chandigarh, Ahmedabad, Nashik, etc. The emerging hot spots are also offering competitive talent at lower wages than the preferred locations, Infrastructure and realty advantages, lower attrition and lower operating costs.
Domestic business will be hot and happening
The Indian domestic market for IT and BPO has typically not interested the large companies, which are traditionally export focused. However, a few large IT deals in the past two years, especially in BFSI and telecom helped in sparking the interest for domestic business in India. Ironically, many of the largest domestic deals, especially in telecom, have gone to multinational vendors. But as the Indian economy grows rapidly, new opportunities are emerging in retail, manufacturing, media & publishing, for Indian vendors to tap. The year 2008 may see a lot of noise around outsourcing in the domestic market. High growth rates, Rupee denominated contracts and better utilization (day shifts) will grab the attention of small and large Indian exporters. We expect that large IT/BPO companies will look for acquisitions in the domestic space to acquire specific capabilities and client relationships.
