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Business Process Outsourcing Mr. Manish Agarwal Vice President, Polaris Software Ltd.

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The BPO industry in India is gaining momentum and promises to add 3.3 Million jobs in India a country where productive employment is scare. To understand what BPO companies do we will consider a simple example of cheque clearing in a US Bank

Once a customer deposits a cheque into his account, the bank collects all cheques deposited during the day and enters the cheque details like account to be credited, amount, cheque number etc on the banks systems. The cheque is then sent in clearing, and the following day the bounced cheques are received by the bank. The bank then identifies the accounts where the cheques are bounced, reverses the credit into those customer accounts and makes the credit permanent into those accounts where the clear funds have been received. This sounds like a very simple process. However the dynamics of the situation will change dramatically if a particular financial institution processes say 1 Million cheques every day as is the case with many banks who offer credit cards.

In such a situation the bank would require a army of people 1000-2000 in number to carry out this activity. With that many people and volumes how will the bank ensure that one of the person's doing the data entry does not credit his own account with the bank instead of crediting the account of genuine customer? Or how will the bank ensure that the customer account is credited for the correct amount? To prevent fraud or mistakes from happening the bank will ensure that over and above the data entry person one more person does a check that the correct account is credited with the correct amount. Despite these volumes the bank also needs to ensure that it does not lose out because it has erroneously credited customers for funds, which have not been received from clearing bank. This means that the bank has to have a strong reconciliation department, which will reconcile the funds received, by the bank from clearinghouse and the funds that have been credited to customer.

The key to understanding BPO lies in the fact that a simple and mundane transaction like a cheque deposit at high volumes cannot run without adequate processes and controls in place and that it must follow a certain defined business process. This is where Business process Outsourcing comes in wherein a entity in India offers to do these activities out of India at a substantially lower price (say about 40% lower than US). Broadly if a Bank shifts work of a 1000 people from US to India it can save about USD 18 Million per annum due to lower wages and costs in India

The next question to ask is if that were the case why did the US institutions not identify this opportunity earlier. The answer to this lies primarily in the series of technological changes that occurred in the Information technology in the last decade. To revert to our example for cheque clearing in the 1980's if the activity were to happen out of India the cheques would have to move to India physically by courier and then go back to US after data entry to be presented in clearing within US. This would introduce delays in the process and the customer account could not have been credited at least for 10 days from time of deposit, something that would not be acceptable from a customer service point of view. Today thanks to technological developments that physical cheque stays in US, what moves is the image of the cheque, which is scanned in US and sent to India for data entry by Indian entity. The second technology development that makes the cheque clearing process amenable to offshoring to India is the fact that Bandwidth space required over network to move the image is affordable as compared to 1980's or 90's. The third development that aided the off shoring process was the fact that in the 1980's not all banks were so highly automated and that accounting was manual in some parts of US Industry.

There were other factors also which facilitated India as a good destination for BPO, these were

a) Availability of large pool of English speaking, low cost, educated manpower
b) Success of Indian's in the silicon valley boom which created a perception of India as a source of high quality manpower.
c) Offshore IT outsourcing had been established as a successful model in 1990's, hence off shoring was seen viable and working by US companies
d) The NRI community in US held important positions in many US multinationals, some of these individuals were key influencers in the decision to outsource to India. They educated the skeptical US nationals about the advantages of outsourcing to India and the risks involved
e) Some US and UK multinationals operating in India like Citibank, GE, British Airways saw an early opportunity and their success in BPO offered a good case study for others to follow.
f) Indian government moved sensibly deregulated telecom, which made the telecom rates affordable for connectivity. For BPO business connectivity and bandwidth to US are pipelines which carry raw material (data) and finished goods (services) back and forth between consumer and service provider

BPO promises to transform India economically much in the way as oil transformed the economies of West Asian countries. To understand whether that is actually so the following projections merit a consideration:

a) Forrester research predicts 3.3Million US jobs to move Offshore by 2015
b) BPO revenue has grown by 60% in the year 2002-2003 to touch USD 2.3 billion. This is slated by grow by another 60% in the year 2003-2004 as per Nasscom
c) As per Nasscom-Mckinsey report the total opportunity is at USD 148 Billion and if India captures 1/6th of that then it will translate to about 540,000 jobs by 2010 with a revenue of USD 24.67 Billion.

Assuming these projections were correct then in year 2010 BPO industry will directly support the livelihood of about 1.0-1.5% of India's population. Another 0.5% of the population will be supported by the ancilliary effect of BPO. Thus at best 2% of India's population will be impacted by BPO. In sheer GDP terms assuming India's GDP to be about USD 600 Billion by 2010, 4% of the GDP will be contributed by BPO. Though significant these numbers do not bear comparison with the oil prosperity of West Asia. However these numbers are sufficient to spark the 'prosperity chain' wherein the capital generated through this industry is invested back in other industries not only domestically but globally to generate a virtuous cycle of investments and profits

There is a growing perception that BPO is all about low end work migrating from US/UK to India. While this is partially true in the area of financial services this is not necessarily true for many firms which are setting up shops in India in order to outsource high end cutting edge research work. India is being increasingly recognized not just as a supplier of low cost manpower but also of the best brains in areas of medical research, Engineering design, IT research etc. To recount some success stories IBM set up India Research Lab in 1998 which now produces 30 patents a year and the 35 Phd's and another 35 personnel with Master's degree from US produce about 75 research papers which are published in international journals. Similarly Intel in 1999 set up India development center which develops software to power chips which drive personnel computers and high end network computers for internet applications. Adobe has invested USD 100 Million in India R&D center which accounts for 10% of company's global R&D budget. GE's second largest R&D center is located in Bangalore and hires 1700 professionals of which 450 are Phd's . This center produces 240 patents in a year and focuses on research in Chemistry, Material science, polymers, medical imaging, product design for locomotives and turbines.

These developments are breath taking not only because they have the potential of reversing the brain drain that was happening from India through the 70's to the 90's but also by shifting the economic landscape of India through integration with US and European economies. If this works out hopefully instead of exporting our children abroad we will be attracting the finest global minds to the country.

BPO can be a significant contributor to national prosperity and when combined with creativity and excellence in manufacturing /R&D can really propel the country to a developed one. I am waiting for the day when my son will find if difficult to understand why his uncle migrated to US