As Global BPO Becomes All About Quality, Newcomers Jockey for Position Against Established Rivals

Ovum, Avasant and Everest see struggle to differentiate in era of ‘value add’

By Ashok Patil

As outsourcing becomes a common practice among the business community, service providers across the globe are relentlessly devising newer and newer strategies and delivery models to stay relevant and grab a larger slice of the market.

India, the industry’s dominant player, is scrambling to cut costs and inject value into services. Unlike the countries in the Nearshore region, India has a few options at its disposal to remain dominant and relevant. Indian Outsourcing service providers are increasingly focusing on enhancing the quality of their service as the wages have continued to rise steadily over the past years.

Until recently, reducing cost was the key aim of service providers, but things have changed. Many service providers, particularly those who entered the market as of late, are focusing on quality instead of cost.

For these new entrants, offering high quality service at a low-cost is not easy, however.

Service providers in emerging destinations, such as China and Latin America, seem to have grabbed more than 10 percent of the market share from India Inc. Nevertheless, India has remained the largest BPO provider.

Experts say the sudden rise in the number of outsourcing service providers has increased competition. More providers walked into the market as U.S. companies looked for newer locations to outsource their back-office functions. These new competitors are doing everything they can to grab a larger slice of the market share from large and more established players.

“I think the cost advantage is fading with many ITO/BPO processes being automated. But Asian locations will retain the scalability advantage with their huge educated workforce,” says Anupam Govil, Senior Partner with Avasant and President of AvaSense.

What the Buyers Look For?

Enterprises, according to the Everest Group, examine several values ––sourcing models, risk diversification, access to language skills, cost arbitrage, etc –– before wrapping up deals with a service provider. And they weight both value and cost before making their decision.

“Multi-location delivery centers, proximity and cultural affinity are some of the major factors that enhance the value of a delivery center,” says Anurag Srivastava, an analyst with the Everest Group, pointing at the established players who are increasingly expanding their operation in the nearshore region.

Analysts say buyers are putting as much emphasis on quality as on cost. Working closely with the client is just another way of adding value to the service.

Many service providers, analysts say, have kept on modifying their delivery model in a desperate attempt to stand out from the crowd. But the fact is only a few providers have managed to ‘stand out from the crowd’ successfully.

Established players like Accenture, IBM, and Capgemini are adopting ‘transformational’ strategy, while some providers are adding SMAC services –– social media, mobile, analytics and cloud –– to their offerings.  Indian service providers have an advantage when it comes to application management.

But what is clear is that the new entrants have heated up the competition. Some of these newcomers are not limited to a particular country, they are expanding into many important markets, or joining forces with competitors to better tackle complex projects. Still, most of them are yet to attract the attention of large enterprises and government agencies.

A few mid-tier companies, such as Genpact, WNS and EXL Services, quickly responded to the market demand and expanded into far-flung locations, including Latin America. Aside from setting up offices overseas, they added more services to their portfolio –– finance & accounting, customer service, research & analytics, to name a few.

Genpact is also expanding in continental Europe and the Middle East, and intensifying its effort to catch up with the early entrants such as Infosys and TCS. These initiatives of the company were reflected on the financial results it unveiled recently –  Genpact reported 15.7% growth for the first quarter of 2013, while other India-centric competitors such as TCS, HCL Technologies, Infosys and Wipro posted growth rates in the range of 4% to 15%.

The Battle over Cost and Value

“As long as you add value, you keep buyers happy. Most service providers are carefully carrying out their job to retain their customers,” says Thomas Reuner, an analyst with Ovum.

Reuner says it is, however, hard to examine what changes the value has brought about. “To have a significant success with such large transformational deals, buyer and service provider should partner and work together,” Reuner added.

With all the complexities in the global sourcing industry, it is difficult to know exactly how costs can be reduced. Service providers can keep on winning deals so long as they successfully distinguish themselves in terms of value proposition, delivery model, service offerings, pricing and location.

“Cost parity cannot be achieved in the foreseeable future due to many factors,” stated Anupam Govil. He says market will correct itself as low-cost service providers expand into areas where wages are high. However, Govil pointed out , it will take some time for the industry to push down the cost.

So long as service providers do not streamline their operation and hire limited number of employees, pushing down cost will remain a challenge.