MUMBAI - The
share of information-technology (IT) services in business
process outsourcing (BPO) is expected to grow
dramatically over the next four years, given the trend
to use IT as a way to improve productivity.
"In 2003, users worldwide spent more than
US$400 billion on outsourcing business processes and
functions, of which just 12% was on IT services," a
recent study by United States research firm IDC says.
"IT services" is an umbrella term that
includes IT outsourcing, infocommunications
consulting, systems integration, data hosting
services, customized application development, software
deployment and support, training, hardware support,
and network integration. IDC forecasts that by 2008, 23% of
BPO spending will consist of IT-related services.
In value terms, IT services now account for
about $50 billion of the $400 billion BPO market, and
by 2008 it will account for approximately $156 billion
of the projected $680 billion BPO market. More than 40%
of the net new IT services growth in the next four years
may channel through BPO opportunities.
IDC says the major reason for this increase in spending is
that IT services are being increasingly integrated
within business processes as a tool for improving
productivity. With BPO spending growing at an annual
rate of 11% and IT services making up an increasingly
larger portion of that spending, it follows that an
increasingly large share of IT services will be actually
bundled within BPO agreements.
But the
BPO-driven shift in IT services calls for major changes
in the way the IT market sees itself and approaches its
customers. "More of the IT market will not only need to
be messages and marketed downstream but also will be
sold and delivered in business contexts that have little
to do with technology and everything to do with business
strategy and operations," IDC said.
Fueling
success in 2003 Accelerated activity
in offshore outsourcing was another factor fueling the market
for IT services worldwide last year. Kathryn Hale,
principal analyst for global IT research firm Gartner,
said companies based in the US and India have been most
successful at driving sales outside their native regions
of North America and Asia-Pacific.
"Vendors
based in other countries tend to sell primarily in their
own country, then expand within their local region. As a
result, vendors based in the United States and India are
more experienced in global sourcing and best positioned
for global expansion." (Global sourcing is another term
for offshore outsourcing.)
Preliminary results from Gartner suggest that US-based vendors
continued to lead the global IT-services market and attracted 59%
of total spending. IBM Corp remained the largest
vendor, with IT-services revenue rising 6.2% to $42.6 billion,
and its market share unchanged at 7.5%.
Despite all the attention India receives for its role in
the BPO industry, its IT-services vendors still represent
a small segment of the global market, with 1.4% of
total revenues. However, their revenues rose 29%, compared with
only 4% among US-based vendors. India-based vendors
depended almost entirely on exports, with 92% of their
revenues coming from customers outside India and only 8%
within India. But this is expected to change.
"The gradual merging of the Indian economy with
the global economy is opening up the Indian market for
international competition," said Ravindra Datar,
principal analyst for Gartner India, based in Mumbai.
"This is encouraging enterprises in India to invest in
technology and global best practices, further driving
demand for IT services here in India."
Meanwhile, the strengthening of many
international currencies against the US dollar also had
a significant impact on overall revenue results in 2003.
"Although the growth of the services industry improved
compared with the decline of 0.3% in 2002, growth rates
were inflated by changes in the exchange rate of the US
dollar," Hale said. "Vendors operating extensively
outside the United States reported inflated growth after
converting local currencies into dollars."
India's rising salaries India's
growth may be affected by its shortage of skilled
manpower in the IT and BPO sector. This shortage is
fueling a hike in employee salaries, which have posted
10-40% growth over the past couple of years.
"While there is abundance of trainable human
resources, a dearth in skilled manpower is being felt
across the industry, from call centers to solution
providers, and this has resulted in a hike in salaries,"
said Datar.
Typically, salary jumps
happen not just because of the conventional manner
of being promoted but also because of professionals
hopping jobs more frequently, he said. The increase
in salaries varies from job to job, and ranks highest
among call-center employees, who get a hike of more than 40% when they
join a new establishment.
There is
no dearth in entry-level human resources as there is
a larger supply, but a severe shortage is felt
in the middle-level positions. A trained junior
level professional gets about a 25-40% hike in salary in a new job.
However, at the middle-level position, owing to a higher base
of salary to compare with, the percentage change
in salaries is lower at about 15-25%, Datar said.
Other benefits such as higher
position, more responsibilities and better perquisites are the
drivers for the shifting of jobs in the middle-level
positions. According to Datar, many new captive and third-party
offshore facilities being set up in the country have led
to a competition for skilled human resources that are
already scarce. This is also leading to an ever-widening
demand-supply gap and rise in average salary levels for
all positions, apart from pushing up attrition in
existing facilities, he said.
A dearth
in manpower is being felt in call-center and BPO
operations, the software and services sector and
maintenance and support services among others, he said,
adding that a trend of employees moving from Indian
companies to multinational companies abroad for higher
salaries and global experience and returning to Indian
firms, but for a higher pay and position, is also
emerging. This leads to local vendors getting access to
professionals trained in global best practices, while
the increase in salary levels is pushing up costs and
putting pressure on margins.
The constant churn
of human resources also pushes up training costs and may
affect the quality of output, he opined.
"There
is an urgent need to find a long-term solution to this
challenge, by way of ensuring sustainable flow of large
numbers adequately trained human resources. One of the
ways to do this is to ramp up the educational
infrastructure through joint industry-government
initiatives," said Datar.
