A STUDY ON PROBLEMS AND PROSPECTS OF BUSINESS PROCESS OUTSOURCING IN INDIA

Full text

(1)

A Monthly Double-Blind Peer Reviewed Refereed Open Access International e-Journal - Included in the International Serial Directories.

GE-International Journal of Management Research (GE-IJMR) ISSN: (2321-1709)

188 | P a g e

GE-International Journal of Management Research

Vol. 4, Issue 5, May 2016 IF- 4.88 ISSN: (2321-1709)

© Associated Asia Research Foundation (AARF)

Website: www.aarf.asia Email : editor@aarf.asia , editoraarf@gmail.com

A STUDY ON PROBLEMS AND PROSPECTS OF BUSINESS PROCESS

OUTSOURCING IN INDIA

Pooja Bector

Assistant Professor in B.P.R. College, Kurukshetra.

ABSTRACT

In today’s globalised market customer seek and demand world class product with lowest

possible price, the company’s competitive advantage lies in delivering high quality product and

services at a lower price. Nowadays companies are facing severe competition, rapid

technological changes, and fast changes in customer’s need and wants. In response to these

changes a number of companies around the world are restructuring their business, operations

and contractual relationship with outside business partners. Business process outsourcing is the

contract for a specific task, such as book keeping, payroll processing, medical transcription,

legal transcription, etc. to a third party service provider. BPO can be classified into different

segments such as: (i) Back office out sourcing like billing ad purchasing (ii) Front office out

sourcing like marketing technological support etc, (iii) offshore outsourcing like international

trade and foreign investment etc. The advantages of business process outsourcing are numerous

out sourcing reduces the cost of operation to a large extent, It improves efficiency, speed, and

services, it also enhances customer’s satisfaction. Outsourcing allows a firm to transfer its

noncore functions to suitable business partners and give more focus to its core activities. BPO

leads to bringing together the best quality services, product and people. In India there is huge

scope for out sourcing because India has the largest pool of low cost English speaking

managerial and technical people. This make India one of the obvious choices to outsource. The

(2)

A Monthly Double-Blind Peer Reviewed Refereed Open Access International e-Journal - Included in the International Serial Directories.

GE-International Journal of Management Research (GE-IJMR) ISSN: (2321-1709)

189 | P a g e

western countries and huge pool of English speaking and computer literate manpower the cost of

these skilled manpower are almost 50% cheaper in comparison to the other countries.

Key words: Business process out sourcing, competitive advantage, globalised economy.

Introduction

The turbulent times through which the economies are passing through have changed the

perception and preferences of all the investors all over the world. Nowadays companies are

facing unprecedented turmoil in global markets. Severe competition, rapid technological change

and rising total risks have increased the burden of top management to deliver superior change

and rising total risks have increased the burden of top management to deliver superior

performance and better value for the enterprise and the customers. In response to these pressure,

an increasing number of companies around the world are dramatically restricting their assets,

operations and contractual relationships with outside business entity. Business Process

Outsourcing (BPO) is the contract for a specific business task, such as payroll processing,

book-keeping, tax preparation, medical transcription, legal transcription etc. to a third party service

provider. Advancement in information technology helps to link firms to the global business

process. BPO can be classified into different categories (i) back office outsourcing which

includes internal business functions such as billing or purchasing (ii) front office outsourcing

which includes customer-related services such as marketing or technological support (iii)

offshore outsourcing, which includes various international trade and foreign investment

activities, (iv) near shore outsourcing, a form of off shoring, which is used to refer to the practice

of getting work done or services performed by people in neighboring countries rather than own

country and the BPO also contracted with (1w company‟s own country is called onshore

outsourcing. Outsourcing reduces capital and manpower requirement It also helps the firms to

adjust with unfavorable business conditions like recession The advantages of business process

outsourcing are numerous. Outsourcing reduces various costs. there is a remarkable savings on

manpower and training costs. It improves efficiency. speed and service and at the same time

increases customer satisfaction. Outsourcing allows the management to offload non-core

functions and thus management can focus on strategic thinking, process reengineering and

managing trading partner relationships. Business Process Outsourcing leads to bringing together

the best quality services, products and people. Globally international sourcing accounts for an

(3)

A Monthly Double-Blind Peer Reviewed Refereed Open Access International e-Journal - Included in the International Serial Directories.

GE-International Journal of Management Research (GE-IJMR) ISSN: (2321-1709)

190 | P a g e

Today in India BPO has huge potentials as India has one of the largest pools of low-cost

English speaking people. This makes India one of the obvious choices to outsource. Dell, Sun

Microsystems, LG, Ford, GE, Oracle have announced plans to scale up their operations in India.

Others like the American Express, IBM and the British Airways are leveraging the cost

advantage; India has to offer while setting up call centers. Several foreign airlines and banks

have to set up business process operations in India. Many European and US companies are

interested to focus their main business and outsource their noncore activities like-Human

Resource Department; Accounting Department etc. to India. There is a good opportunity for

Indian BPO vendors in this area. BPO vendors need to have good, domain knowledge, process

know-how and competence with technological solutions to cater to manage the work. According

to McKinsey-NASSCOM report the key advantages of BPO services to India are cost savings,

quality improvement, productivity improvement. The major thrust for BPO to India are robust

communication facilities, a virtual 12 hour time zone difference from the western markets and

huge poor of English speaking and computer literate manpower. This manpower is skilled and

quality conscious. The cost of such qualified manpower is 50%-6O% cheaper in comparison to

developed countries. Therefore, the Indian BPO firms have the good value proposition of all

BPO hubs. India already has a large and rapidly growing number of business process outsourcing

service providers collectively covering a wide range of BPO services. Now all kinds of

information can he stored by digitalization and cheaper and faster transportation allows the

exchange of digitalized information between people anywhere around the globe:

Objective of the Study :

1. To understand the concept of business process outsourcing in Indian context.

2. To know the present scenario of business process outsourcing in India.

3. To know the problems faced by Indian firms for business process outsourcing.

4. To find out the future prospects of Business process outsourcing in India.

In this context the present paper makes a modest attempt to prepare a framework on the

basis of Strengths, Weaknesses, Opportunities and Threats (SWOT) of BPO markets in India.

Information Collection and Methodology

The information required for this study has been collected from the various business

(4)

A Monthly Double-Blind Peer Reviewed Refereed Open Access International e-Journal - Included in the International Serial Directories.

GE-International Journal of Management Research (GE-IJMR) ISSN: (2321-1709)

191 | P a g e

BPO strength and weakness can be fruitful only if the environmental factors and market

conditions are considered along with the internal capabilities. This approach essentially involves

matching of the internal capabilities with the environmental opportunities and threats, is known

as SWOT (Strengths, Weaknesses, Opportunities and Threats) Analysis. Under SWOT Analysis,

Internal Factor Analysis Summary (WAS) and External Factor Analysis Summary (EFAS) tables

have been prepared to generate a Strategic Factors Analysis Summary (SFAS) Matrix - which is

a powerful analytical tool for the purpose of strategic decision making which are discussed

below:

Analysis and Findings

Table 1: Internal Factor Analysis Summary (IFAS)

Internal Strategic Factors

Strengths & weaknesses Comments

S1 Quality Manpower English-speaking, technically sound and dedicated workforces are available in India.

S2 Supportive Government Policies

IT is regarded as one of the priorities of Government of India. IT is a part of the national agenda, and policies are framed so as to obtain maximum benefit out of IT outsourcing to India. S3 Cost of Labour Cheaper workforces are available in India than its Western

counterparts. Skilled manpower is available at a cheaper rate. S4 Time difference advantage Round-the-clock advantage for Western companies due to the

huge time difference. India is able to offer a 24 x 7 services and reduction in turnaround times by leveraging time zone differences. India‟s unique geographic positioning makes this possible.

W1 Infrastructure The cost of telecom, power and network infrastructure is much higher in India than other neighboring or competing countries like China, Japan, UK, US etc. Although, India has not been able to set tip adequate infrastructure to meet global standard but the scenario is now changing. Many State Governments in India are offering incentives to set up IT enabled services.

W2 Level of Attrition There is challenge to find out quality human resources given the current attrition rate, But more than 60% of those who leave a particular BPO do not leave for a competitor, hut they say good-bye to the BPO sector. Here lies the danger for this sector and the challenge for BPO market.

W3 General or Industrial Strike Frequent announcement of general or industrial strike by the trade unions or political parties stands before the ways of progress for BPO services in India.

(5)

A Monthly Double-Blind Peer Reviewed Refereed Open Access International e-Journal - Included in the International Serial Directories.

GE-International Journal of Management Research (GE-IJMR) ISSN: (2321-1709)

192 | P a g e Problems and Prospects of Business Process Outsourcing in India

Table 2: External Factor Analysis Summary (EFAS)

External Strategic Factors

Opportunities Comments 01 Attraction to non-resident

and overseas trained Indian talent pool

Most of the BPO companies in India are offering high salary packages rather than to other countries to protect Brian drain. The Indian talents who have gone abroad for employment purpose or non-resident and overseas trained Indian talent pool are now moving towards India for joining the BPO Industry.

02. New employment creation In the next few years new jobs will be created. Technology and medicine are expected to be major drivers for job creation”.

03 Market Potentiality India can capture 25% of global BPO market and 12% of the market for other services such as animation, content development etc. Many companies intend to extend outsourcing to more areas in India than routine ones. 04 Earned global confidence

and recognition

India has an opportunity to earn global confidence and recognition because of its distinctions of being the first choice of many international companies for software outsourcing. Many US companies ranks India as their first choice for software outsourcing.

Threats

TI Competition Earlier, the Philippines, Ireland, Malaysia and other few countries were competing where India had quite a sustainable strategic advantage. Now China has emerged as strong competitors. At the moment language is one of the positive factor which is benefiting India, but gradually China is trying to overcome that short coming in order to take the strategic lead, India has to gain other advantages.

T2 Anti-outstanding Legislation The anti-outsourcing legislation has already started in. the US. Many states in the United States are planning legislation against outsourcing. Workers in British Telecom have protested against outsourcing of work to Indian BPO companies.

T3 Political Instability Due to the instable political scenario, the Government might have to change its IT policies, which will affect all the companies in India.

T4 Pressure on the Cost per unit of process

(6)

A Monthly Double-Blind Peer Reviewed Refereed Open Access International e-Journal - Included in the International Serial Directories.

GE-International Journal of Management Research (GE-IJMR) ISSN: (2321-1709)

193 | P a g e

The problems and prospects of BPO in India have been evaluated in this paper through

Situational Approach by using SWOT Analysis. Under SWOT Analysis, Internal Factor

Analysis Summary which has been shown in Table-i (based on Quality Manpower, Supportive

Government Policies, Cost of Labour, Time difference advantage, Infrastructure, Level of

Attrition, General or industrial Strike and Legal System) and External Factor Analysis Summary

which has been shown in Table-2 (based on Attraction to non-resident and overseas trained

Indian talent pool. New employment creation, Market Potentiality, Earned global confidence and

recognition, Competition, Anti outsourcing Legislation, Political instability, Pressure on the Cost

per unit of Process) have been prepared to generate a strategic Factor Analysis Summary matrix

which is given in the following diagram:

Strategic Factors Analysis Summary (SFAS) Matrix

Strategic Factors (Selection has been made on the most important strengths and

weaknesses from IFAS and the opportunities and threats from EFAS.)

Most Important Strategic factors

Strength:

SI Quality Manpower S2 Supportive Govt. Policies S3 Less Cost of Labour S4 Time difference advantage

SI Quality Manpower S3 Cost of Labour

Weaknesses:

W1 poor infrastructure W2 more Attrition rate W3 General or Industrial Strike W4 Legal System

W1 Poor Infrastructure W2 more Attrition rate

Opportunities:

01 Attraction to non-resident and Overseas trained Indian talent pool 02 New employment creation 03 Market Potentiality 04 Earned global confidence.

02 New Employment Creation O3 Market Potentiality

Threats: T1 Competition

T2 Anti-outsourcing Legislation in many countries.

T3 Political instability

T4 Pressure on the Cost per unit of-process

(7)

A Monthly Double-Blind Peer Reviewed Refereed Open Access International e-Journal - Included in the International Serial Directories.

GE-International Journal of Management Research (GE-IJMR) ISSN: (2321-1709)

194 | P a g e Conclusion

Migration of jobs to India by business process outsourcing has even resulted. in several

states of US passing laws for banning many jobs to other countries.

Today, Indian companies are offering a variety of outsourced services ranging from

customer care, transcription, billing services, database marketing, web sales / marketing,

accounting, tax processing, transaction document management, telesales / telemarketing, HR

hiring and biotech research etc. No doubt outsourcing is here to stay but the most important

question is how should India retain the status of a preferred destination? Cost savings and labour

rate would cease to be differentiators in the long term as other countries try to catch up. India has

been able to create a position in the BPO sector due to committed, qualified and competent youth

who are IT savvy. Robust communication facility, maintaining quality, ensuring higher

motivations of employees, ensuring security of data interchange, a large English-speaking

workforce, low labour costs, customer satisfaction, appropriate time zone difference with the

Western market and the brand equity built by Indian companies are reasons for choosing India as

a BPO destination. It is definitely a sunrise sector in India with bright prospects in the long run.

References

1. Wheelen Thomas. L and Hunger David. J. “Environmental Scanning and Industry Analysis”. Prentice Hall (2004), Chapter-3.

2. Nakkiran, Sand Franklin John. D, „Business Process Outsourcing: Concept, Current Trends, Management and Future Chal1enges‟)

3. Sharma. Dhiraj, Saxena. Sharadand Aanand. Shubhra, „BPO: The Strategic Alternative for India‟, (http:/ /sae. sagepub.eom/ cgi/reprint/6/l/117.pdf)

4. Datar, R and Chohan. S (2002), „Business Process Outsourcing in India: A Fact Book‟,

Dataquest, 1(4). (http://sae.sagepuh.èom/cgi/reprint/6/l/117.pdf)

5. Furniss, T. and Janssen. M (2003), „Offshore Outsourcing Part 1: The Brand of India‟,

BPO: Outsourcing Journal,.

6. Hedge I. V.(2003), „The Changing Trends and Patterns of Software Exports in India ,

Journal of Indian Management and Strategy, PP.- 8-1.1.

7. McCracken. B (2003), „Outsourcing Inbound E-mail Response Business Process

(8)

A Monthly Double-Blind Peer Reviewed Refereed Open Access International e-Journal - Included in the International Serial Directories.

GE-International Journal of Management Research (GE-IJMR) ISSN: (2321-1709)

195 | P a g e

8. Dr. Ramesh. T, „Outsourcing- A New Wave of Business‟, The Management Accountant,

September-2005, Vol. 40, No. 9, P-694.s

9. Francis cherunilam “International business: Text and cases, Fifth edition PHI Learning,

New Delhi,2010

Websites

1. http://www.xicomiiz/research. him

2. http://www.miniosystems.com/hpo-india/husiness-process-oiitsourcing.htrn

3. http://www.businssstransformationout.sourcing,com/what-is-ousourcing.htm

4. http://searchcio.techtargel.com/sdefmilion/0,sidl9_gci 928308,00 Mm

5. http://itoutsourcingindia. com/india/

6. http://www.itechzone.com/husinessjirocessj3utsourcing.Iilm

7. http://www.bpoindia.org/

8. http://www. bpoindia. org/knowledgebase/indian-market-size

9. http://www.outsource2india.com/whyoutsource/articles.asp

10.http://sae.sagepub.eom/ cgi/reprent/6/1/ll 7.pdf

11.http://www.lne56.com/research/downIoad/accenturejjpo _hig_hang.pdf.

Figure

Table 1: Internal Factor Analysis Summary (IFAS)

Table 1:

Internal Factor Analysis Summary (IFAS) p.4
Table 2: External Factor Analysis Summary (EFAS)

Table 2:

External Factor Analysis Summary (EFAS) p.5