India has emerged as key player in the International Business Processing Outsourcing segment. Significantly this growth phase started a decade ago remains intact since several US based IT and other IT’es have set up their back end operations in India.  

The Business Processing Outsourcing services started with basic data entry operations some ten years ago has emerged as a future of India’s fortune. This sector is ranked as a premium foreign exchange earner and employment generator of the country and expected to remain so due to the India’s competitive advantages. Over the years, coping with the great changes in the IT sector, the BPO segment also expanded its scope of services which included increasingly complex processes involving Financial and Banking operations, client servicing etc. It has been offering services such as knowledge process outsourcing (KPO), legal process outsourcing (LPO), games process outsourcing (GPO) and design outsourcing among others. The scope is getting wider and India is becoming a major BPO hub. The inherent IT strength of India instilled confidence among leading global players.

 Some of the latest estimates projected that this segment has grown at a rate of 30.7 per cent, with revenues of US$ 39.6 billion in 2006-07. The BPO sector is projected to grow 27 per cent and will attract a revenue US$ 58 billion in 2007-08. With the fast growing Indian economy being largely consumer-led, companies are now opting for BPO services to beat competition. Telecom, financial services are the key segments which are largely going for the outsourced services. According to Nasscom, the domestic BPO market is expected to grow to US$ 7.6 billion in 2011. The segment is growing at about 40 per cent CAGR.

 Over the last five years, the BPO segment has been growing at 40% per year and the employment is generated to the tune of 2 lakh. According to Nasscom, domestic BPO revenues almost doubled to US$ 1.18 billion in 2006-07 compared to US$ 600 million in 2005. The domestic market is expected to reach US$ 10 billion in the year 2008, at a growth rate of 20-22
per cent. The flow of investment in this sector is flowing at a faster pace. Companies like Aegis Communications Group, Firstsource Solutions, Infovision, Intelenet, IBM-Daksh are some of the new entrants.

According to IBEF, IT’es/BPO exports grew by 33.5 per cent to clock revenues of US$ 8.4 billion in FY07, marginally higher than the growth of 33.3 per cent in FY06. India holds a dominant share of the global offshore IT-IT’es sector (65 per cent of the global market in offshore IT and 46
per cent of the IT’es market). However, at US$ 31.3 billion in FY07, Indian IT-IT’es exports account for less than 3 per cent of the global spend on IT and IT’es. If India maintains its current share of the global offshore IT-IT’es market, IT- IT’es exports from India will exceed US$ 60 billion by FY10 and US$ 86 billion by FY12. Further, growing at current trends, Indian IT-IT’es exports are projected to reach nearly US$ 330 billion by FY20 (nearly 14 per cent of the projected worldwide spend).

The services exports are mainly centered towards USA and Europe. USA is the largest service taker from India as far as the BPO services are concerned. However, the share of Europe has been increasing steadily. The revenues from the Americas constituted at 67 per cent, Europe 25 per cent and rest of the world, 7.7 per cent.  But the share of services from India to non USA region has been gradually.

Most Indian IT companies are spreading their services delivery infrastructure within India by moving into Tier-II and Tier-III cities to maintain their cost-effectiveness and to deal with competition from countries such as Taiwan and Vietnam. They are making inroads into China and setting up near shore centres in Eastern Europe, Latin America and Canada. They have adopted unconventional business models to gain market share and establish a global footprint and a global brand presence.

With their high growth potential, BPO entities have been leading the pack in the IT services space in terms of mergers and acquisitions (M&As). Recent M&A deals include one between Infosys and Philips BPO valued at US$ 250 million and another between Blackstone and Intelenet valued at US$ 200 million.