The fact that the Business Process Outsourcing (BPO) industry in India is growing faster than ever was demonstrated by the “standing room only” sell out response to Nasscom’s annual BPO summit in Bangalore in August. An industry which was created to a large extent by the early moves of GE under the leadership of Jack Welch now sees globally-listed firms like GENPACT, WNS and EXL clocking a few billion dollars in value and leading a pack of small medium and large firms whose employment may well overtake that of the much older infotech services industry in the not so distant future.

The views of research industry leader, Gartner at the conference point the way to the future of this dynamic segment of the Indian knowledge industry. Single process outsourcing successes have morphed into comprehensive end to end services with more and more process optimisation resulting in higher value addition. Platform BPO solutions have also begun to substantially improve the quality and speed of new process migration offshore and multi-function BPO as well as comprehensive human resource outsourcing have moved to the very apex of the “hype cycle”. There are quite a few challenges emerging as well.

The abrupt rise of the rupee against the dollar and pound have left many young BPO firms gasping for breath and the inherently lower profitability of this segment compared to the industry majors in IT services puts most players at risk with the dollar likely to seek lower and lower levels against the rupee in the next 18 months or so. Business transformation consulting, which seemed to be the logical next wave as more and more Knowledge Process Outsourcing wannabe firms emerged has dipped into the trough of disillusionment that follows the peak of inflated expectations in the Gartner hype cycle and if the industry has to continue to maintain a profitability level north of 20 per cent, a study by Mckinsey suggests that many critical parameters of operational excellence—shift utilisation, productivity, support costs, span of control and the ever present Damocles sword of attrition — have to be put under the microscope. Another interesting nugget from Mckinsey was that industry leaders who are setting best practices in human resource management and retention actually pay less than the laggards and are leveraging effective people management practices rather than higher compensation to keep their teams intact.

And finally, a reaffirmation of a feeling that most industry watchers have had—captive BPO units average a cost level which is 37 per cent more than third party processors even though the best in class turn in cost data, which is less than the figures of the best third parties. There is an old Chinese curse “May you live in interesting times” and these are definitely that.

The paradox is that a segment of the industry which benefited in its initial days through its umbilical cord connection with the IT sector is now concerned that the withdrawal of tax benefits may result in making the Indian BPO sector less competitive than China and Eastern Europe, which are nipping at our heels. Maybe better sense will prevail and the sunrise industries will get continued support from the powers that be—let’s wait and see.