Source: www.business-standard.com

Indian export-oriented information technology (IT) and business process outsourcing (BPO) firms may be grappling with an appreciating rupee and clouds of doubt looming over the extension of tax sops for the sector beyond 2009.

However, the business of BPO firms that cater to the domestic market appears to be booming.

BPO demand in the domestic market has witnessed noticeable growth over the past few years.

An Everest-Nasscom study points out that the domestic BPO market, with a growth rate of 50 per cent over the last five years, has grown faster than the overall Indian BPO market to reach nearly $1.6 billion (Rs 6,400 crore) by end of FY2008, against an overall BPO revenue of around $11 billion.

The potential opportunity in the domestic BPO sector is expected to be $15-20 billion by 2012 compared with the $50 billion projected for the overall BPO sector by 2012.

Jimit Arora, senior research analyst, Everest Research Institute, notes there is a definite increase in the interest among vendors across the board to pursue the opportunity for domestic BPO.

Global IT services player IBM has already cannibalised the home turf by winning multi-million dollar deals in India. Taking the cue, BPO players too are gearing up for the exponential growth.

For instance, Infovision, India’s third largest BPO firm catering primarily to the domestic market is looking to more than double its headcount to 25,000 over the next two years.

“We are currently a Rs 250 crore company with about 70 per cent of our business coming from domestic operations. We are aiming to increase this four-fold to Rs 1,000 crore by 2010,” said Aditya Gupta, president, Infovision.

Added Ramachandra Panickar, CFO, Intelenet Global Services, “Our domestic BPO revenues are around Rs 240 crore. We expect the market to grow at over 50 per cent per annum in the next two years. We employ over 15,000 people across seven locations in India, which we plan to increase by 20 to 30 per cent a year”.

“This market depends on the economies of scale. Many contracts are given on the basis of the reputation of the company. The country is going through an inflection point where the customers are willing to pay, but it is still at a growing stage so the companies are looking at bigger domestic players,” said Aparup Sengupta, CEO and Managing Director of Aegis BPO.

Radhika Balasubramanian, COO - India Domestic BPO Business, Intelenet Global Services, noted: “The tremendous growth potential in the domestic BPO market and opportunity to derisk revenue model by providing a balance between international- domestic revenue have spurred international BPOs to enter the domestic market. We see a huge potential here. We have no intentions of making our international business more dominant than our domestic business.”

Similar sentiments are echoed by Sengupta who said, “With consumer spending on the rise in India, our business will also receive an indirect boost, so we intend on keeping half our revenues coming for our domestic business.”

Ameet Nivsarkar, VP, Nasscom added that the domestic BPO market has witnessed an over 40 per cent growth last year, and “we expect it to continue especially with the growing economy”.

Is their optimism well-founded, given that BPOs do not get any tax benefits from their domestic revenues, and the income is taxed at the normal 33 per cent? The cost pressures on a domestic BPO are lower than the international businesses, notes Nivsarkar.

Moroever, their skill requirements are different. For a domestic BPO fluency in a local language as well as a national language is needed, due to which they can easily shift to a smaller city without much difficulty. This would help ease cost pressures as well.

Analysts also explain that catering to international markets give companies margin of at least 20 to 30 per cent whereas back home it is 12-13 per cent. However, while the margins of a domestic BPO are marginally lower than an international BPO, it’s the volume, size and scale that comprise the differentiating factors.

Anish Zaveri, associate director, KPMG Advisory, explains: “The two main investments in any BPO are infrastructure and manpower. These are relatively less expensive for a domestic BPO given the lower salary structure, lower cost of training and business development expenses. They also have the ability to move to lower cost tier-2 and tier-3 cities with greater ease.”

The salary structure for a domestic BPO employee is almost 30-35 per cent lower than an international BPO employee.

He adds: “The efficiency rate in the domestic BPO space is also much higher than its international counterpart. Utilisation ratios are also better. All these factors culminate to lower capital costs.”

Moreover, as the country reaches new high points in its various industries like telcom, retail and hospitality it throws up new opportunities for the domestic BPOs as well.

Source: www.tradingmarkets.com

Software giant Wipro Ltd and Aegis BPO are among some 20 firms vying for a multi-million dollar outsourcing contract from National Aviation Company of India Ltd (NACIL), officials on both sides said Monday.

NACIL, which came out of Air India’s merger with Indian Airlines, has decided to outsource its call centre operations and has invited open tenders for the same, airline officials told Hindustan Times.

The company wants bids for a call centre that can handle 35,000 local calls and about 8,000 international calls per day about airline queries. The centre will also send out alerts on weather, flight delays and other passenger service-related issues.

It will be a 24×7 centre and will likely be located in either one the NCR townships or in the outskirts of Mumbai.

While the exact amount of bidding has not been ascertained, it is learnt that it could be one of the largest domestic outsourcing deal running into millions of dollars.

Industry officials familiar with the matter said Wipro and Aegis BPO, an Essar company, have submitted their ‘request for interest’ among 20 other companies to run and manage the call centre.

When contacted a Wipro spokesperson said: “we don’t comment on market speculation.” Aegis officials also refused to comment on the subject.

“The right company will be selected through a global bid,” said a NACIL official, who spoke on condition of anonymity.

NACIL has to integrate flight schedules of Air India and Indian by March 29 and roll out the proposed new services quickly, because of growing competition. The combined loss of the two airlines touched Rs700 crore last fiscal year.

Source: www.thehindubusinessline.com

Railway Budget presented today, IT services provider Satyam Computer said that it was in pursuit of at least four Rs 1,000 crore to Rs,2,000 crore technology outsourcing deals in the Indian Railways.

Mr Ranjan Tayal, India-Head, Satyam Computer, said the company was in talks with the Indian Railways for such large IT outsourcing deals. They include asset management services, enterprise resource planning (ERP), RFID (radio frequency identification) and commercial portals.

In a statement, he said the Railway Ministry was looking at information technology as a strategic tool where IT partners need to engage not just at the service but at the solution level. The scope of work now goes beyond just implementing IT frameworks. It involves also post-deployment services such as enterprise-wide roll-out and maintenance through call centres for internal and external touch points.

Some of these deals are to be awarded to companies that participated in the request for proposal (RFP), in the first half of the fiscal year which starts April 1.

Dow Jones reports: Infosys Technologies Ltd said it plans to pursue deals arising from Railways’ decision to modernise its information technology infrastructure.

“The gamut of opportunities within IT could cover digitisation, freight management, ticket processing over the mobile/alternative delivery systems, optimising and upgrading IT-infrastructure. This is a great opportunity for Indian IT players such as Infosys,” the Chief Financial Officer, Mr V. Balakrishnan, said in a statement.

The company’s India business unit “will be actively participating in some of these opportunities,” he added.

Source: www.thehindubusinessline.com

Tata Consultancy Services has bagged an over $40 million (Rs 160 crore) transformational engagement from New India Assurance for implementing its core insurance platform across the latter’s 1,100 branch network in the country.

The turnkey engagement – which is spread over a period of eight years — is the first major engagement for TCS in the non-life insurance space, a company spokesperson told Business Line.

As part of the deal, the company will deploy and maintain its insurance suite, TCS BaNCS Insurance.

It will also enable integration of enterprise solutions pertaining to human resources, customer relationship management and business intelligence into the core insurance product, the spokesperson added.

With about 1.5 crore policy holders in the country, New India Assurance is currently the largest non-life insurance company in India.

Revenues from the deal will start kicking in for TCS from the current quarter itself, the company spokesperson added.

IT outsourcing is expected to make the insurance major more productive, so that it can take on increased competition in the space.

Public sector non-life insurance companies have been steadily losing market share in the past few years. In 2006-07, the share dropped to 65 per cent, against 73 per cent in the previous year.

Even though margins in the domestic business have been a cause of concern for IT companies, perceptions of a global slowdown in discretionary spending coupled with the growing IT maturity in India have resulted in the domestic market gaining a lot of importance.

According to a Gartner report, the domestic IT services market is pegged to grow to $10.73 billion by 2011 at a five-year CAGR of 23.2 per cent. Though Indian firms have been laggards in the domestic space, overseas IT companies such as IBM and Accenture have been picking large deals in India.

TCS is now aggressively looking at the domestic IT space.

In an earlier interaction with Business Line, Mr N. Chandrasekaran, Chief Operating Officer of TCS, had said that TCS was pursuing five IT outsourcing deals from Indian firms.

TCS BaNCS Insurance is a part of TCS BaNCS, which was spun off in May last year as a dedicated product company within the TCS fold.

Source: www.businessweek.com

The computer giant’s five-year contract with Vodafone Essar will expand its already huge presence in the country. Will local shops fight back?

On Dec. 10, IBM (IBM) bagged a five-year contract from India’s third-largest wireless operator, Vodafone (VOD) Essar. The deal includes maintaining billing, data centers, and financial systems for Vodafone in India. Vodafone became India’s third largest cellular operator when it acquired Hutchison Whampoa’s 67% stake in Hutchison Essar in February, 2007.

Vodafone is an existing IBM client across the world—especially in the Czech Republic, Spain, Italy, Greece, New Zealand, and Australia—and Vodafone uses IBM for all its customer-related IT requirements.

But for IBM, this contract is a big, big deal. Vodafone is IBM’s third large telecom hookup in India. In March, it won a 10-year, $800 million contract to integrate and transform business processes and IT infrastructure for Idea Cellular, India’s fifth-largest cellular operator. In 2004, IBM won a 10-year IT outsourcing deal from Bharti Airtel, India’s largest telecom player. The contract was then valued at about $750 million and has grown to about $1.2 billion.

Hiring more workers

IBM’s rise in India has been breathtaking. Since 2004 the company has ramped up its business, with research labs and global delivery centers. In 2007, IBM won deals for application and business transformation services and infrastructure management in India’s rapidly growing sectors such as telecom, real estate (DLF), aviation (Delhi International Airport), health care (Apollo Hospitals), and a microfinance technology service provider. It has 73,000 employees in the country and plans to invest $6 billion over the next three years to set up infrastructure, hire more employees, and boost education and training.

This year alone, IBM’s India revenues will be up 30%, to $1 billion. “India is the fastest-growing market for IBM, and we want to maintain our lead,” says Shankar Annaswamy, managing director for IBM India and South Asia.

All of IBM’s telecom deals have been won over established Indian players such as Tata Consultancy Services (TCS), Infosys (INFY), Wipro (WIT), Satyam and HCL. Dabur, one of India’s large sellers of health-care and ayurvedic products, outsourced its IT infrastructure to Accenture (ACN) in a 10-year contract. Accenture will also consult on the company’s business plans and build and run IT systems for supply chain and sales.

Looking for Outside Expertise

The reason Indian companies are choosing non-Indian service suppliers is simple: In the new growth sectors, particularly telecom and retail, Indian players lack expertise. “It’s all about the skill sets that global players have,” says Ravi Trivedy, executive director of KPMG Advisory Services. Another wrinkle: Some industries, such as cellular, are actually more advanced in India than in the West. Indian telcos say local tech companies are ill-equipped to handle their sophisticated, rapidly transforming IT application, maintenance, and development needs.

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