BPOs are coming out of the coder shadow ( India News 2012 )

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By Beryl Menezes & Praveena Sharma | Place: Mumbai, New Delhi | Agency: DNA

Is the business process outsourcing (BPO) servicessegment finally emerging from the shadow of information technology (IT) services?

It sure seems to be trying. In fact, last quarter, most BPO subsidiaries and firms grew at a faster clip than their IT counterparts.

Tien-tsin Huang and Puneet Jain, analysts with JP Morgan, said BPO major WNS’ robust revenue growth of 2% sequentially and 7% year-on-year last quarter underlines buoyancy for this year.

“WNS is seeing benefits from restructuring… and healthy demand environment for BPO services. The company is also seeing a nice build-up of large contracts in its pipeline. WNS needs to win a couple each year to drive next year’s revenue growth,” they said in a note last week. Back home, even HCL saw its margins salvaged by a turnaround in the BPO numbers.

“While… results (of HCL) are ahead of expectations with positive surprise on margins, a large part of the beat was driven by turnaround in the BPO segment,” Religare analysts Manoj Singla, Rumit Dugar and Udit Garg said in a note on Wednesday.

Ankita Somani of Angel Broking said the demand environment for BPOs was improving as clients looked at globalisation of delivery capabilities, which was driving transformation and enterprise-wide cost efficiency.

“HCL is continuously investing in building platforms for non voice-based businesses in this segment. Demand is seen in areas of cloud, mobility, social media and multi-tower end-to-end process data,” she wrote in her report.

Even Sid Pai, managing director and partner, TPI, the third-party outsourcing advisory, said one reason BPO revenues were climbing was it was no longer a back-office support kind of work but more higher-end such as business-oriented core functions that customers were seeking. According to Samiron Ghoshal, partner and national leader, IT advisory & global talent, Ernst & Young, there were two main factors driving the recent BPO growth.

“First, peer BPO deals (contact centre) are not happening so much anymore, and there are more KPO-linked deals. Secondly, a lot of deals which took place in the last 5-10 years are coming up for renewal in the next 12-18 months. The new renewals are also seeing some change in strategy, where processes are being divided between players, instead of giving out bundled contracts for all BPO services to a single player as was the case earlier,” said Ghoshal.

This, he said, worked in favour of companies like HCL, who have more value to add than pure voice BPOs.

“However, this sudden rise in BPO gains can be looked at as a sporadic change and not a complete lifting of the BPO segment since it impacts Opex (operational expenditure) spends and not Capex (capital expenditure) spends,” said Ghoshal.

Ritesh Idnani, chief operating officer of Infosys BPO, said in a recent interview to DNA that he expected the BPO market in India to grow faster than the IT market this fiscal.

Keshav Murugesh, CEO, WNS, said what had turned the tide in favour of BPO was the segment’s focus on non-linear services as well as more consulting and technology-based offerings. He said most firms were slowly moving away from traditional BPO offerings.

“For long, too much attention has been focused only on the IT functions of a BPO process whereas there is a great difference between an IT and BPO buyer on the strategic side. In the current recessionary climate, they are now outsourcing more of their non-core functions to BPOs like WNS, which can provide them with new ideas to improve their top-line and bottom-line,” he said.

IDC has predicted a compounded annual growth rate of 19% for the offshore BPO market in the next five years, the bulk of which is expected to come from India. Recently released TPI index shows that while outsourcing contracts were down 37% sequentially and 20% annually, BPO contracts were up 30% and 27%, respectively for the same periods.

TPI’s Pai, however, does not see BPO revenues overtaking IT services revenues in the near future mainly because of the way its contracts are structured.

“I don’t see it (BPO segment) becoming larger than IT services because of the way it is bought. I believe IT companies would continue to go after IT services contracts,” he said.

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