BFSI, healthcare and telecom are the most promising verticals.

Amid increasing competition and margin pressure, judgment-based work (broadly categorised as higher-end and value-added) provides outsourcing firms the opportunity to offer services at much higher price points. In terms of services offered, traditional BPO services continue to be the most popular service line, with a 53.9 per cent share of the total range of services.

Opportunities do exist in the form of emerging verticals such as knowledge process outsourcing, legal process outsourcing, and engineering process outsourcing — all mutli-million dollar addressable markets.

The vertical composition is changing. Historically, the highest proportion of services offered was to the BFSI vertical. Its share of the overall pie of services fell to 28 per cent in 2007-08 from 31 per cent in the previous year. Similarly, the share of the healthcare vertical decreased from 12 per cent to 11 per cent. On the other hand, the retail & consumer vertical’s share remained stable at 11 per cent.

The verticals that grew the most during the year were aerospace, government and defence, services and logistics, and telecom.

“While the BPO industry is bound to be impacted by the financial crisis, firms have taken measures to mitigate some of that risk. The industry has started providing services to a wider set of verticals, thus reducing their exposure to any one vertical,” says Manoj Vaish, Dun & Bradstreet India’s president & CEO.

Diversification into related areas of outsourcing is an excellent opportunity to counter the threats to both top- and bottom-lines, notes Patrick O’Brien, senior BPO analyst at Datamonitor.

Geographically speaking, BPOs are moving to Tier II cities and rural areas to cut costs. Rural BPOs are the next revolution waiting to happen, according to Ashank Desai, chairman of Mastek. The low cost of operations and considerably lower employee attrition rate are the two key factors that have encouraged many BPO organisations to extend their operations in small towns and villages.

Fighting IT
A threat however looms. BPOs are becoming wary of losing business to big Indian and global IT companies that have a larger global footprint and offer clients end-to-end solutions including BPO services.

Synergies in the two businesses enable IT companies to use common infrastructure and resources to provide BPO services to clients. Clients get the services at lower costs by cutting overheads.

However, although the expansion of IT companies into the BPO business is a concern for BPOs, they take relief in that fact that IT companies can expand on the transaction side of the business, not on the customer services side. To counter the threat, analysts say BPOs must assume leadership in niche segments, such as, technical support or retail operations.

The process, it appears, has already begun. Genpact, for instance, already has a centre in Gautemala and is planning to expand its footprint to Africa by opening a 300-500 seat facility in Morocco in the next quarter. This can be used to reduce risk.

“BPOs can offer domain knowledge and expertise that IT companies can’t,” says Rohit Kapoor, president and CEO of Nasdaq-listed EXL ServiceHoldings. His company is working with insurance clients, but has also added clients in the utilities vertical this quarter.

Source: Business Standard