Karnataka was the first state to draft an IT policy back in 1997. Now it has announced a Millennium Policy for Business Process Outsourcing (BPO). One of the reasons for Karnataka’s success has been its focused approach in addressing various IT and IT-enabled services (ITES) segments. PANKAJ MISHRA finds that the presence of all sections of ITES players makes Bangalore a perfect destination for companies operating in this segment. However, Bangalore is facing stiff competition from Kochi, Hyderabad and Chennai

Avinash Vashishtha says that destinations do not matter to clients

When Nasscom ranked Bangalore below Hyderabad, Kochi and Chennai as an IT-enabled services (ITES) destination, many eyebrows were raised. However, in terms of general perception, Bangalore is still far ahead of other cities. With the industry perception heavily favouring Bangalore, it is time for the state government to put the right kind of infrastructure and power facilities in place. According to Nasscom, the top nine destinations for ITES account for over 90 percent of the business. With competition emerging from several new destinations such as Kochi, Bangalore’s supremacy is in danger.

Hyderabad is also luring ITES players. Chennai, Kochi and Kolkata too rank highly in their infrastructure offerings, policy incentives, and low-cost manpower availability. On the other hand, Ahmedabad, whose strength lies in low-cost manpower, loses out on competitiveness as a result of weaker policy incentives and infrastructure availability. Bangalore, Mumbai, the National Capital Region (NCR) and Pune, rank low in infrastructure availability, policy support and availability of low-cost manpower.

Unlike Chennai, where most ITES companies are captive centres, Bangalore has been able to attract and retain both captive centres and third-party vendors. In terms of the kind of ITES work undertaken, the presence of call centres and Business Process Outsourcing (BPO) companies make it a diverse hub. However, some of the ITES players headquartered in the city are now looking at Kochi and Hyderabad for expansion. Bangalore has traditionally been the call centre hub. Some of these call centre companies are planning to foray into BPO and they don’t want to do it from there.

Though Bangalore has a range of ITES companies, it seems to be stronger in the call/contact centre, transcription, and back-office operations services. Because of its IT-orientation, the city has also been able to attract a reasonable number of companies into database management/development, data processing/management and engineering, design, and GIS services. Given this, the city should still be able to attract other forms of ITES companies. However some of the issues that need to be looked into are:

• The city’s infrastructure, especially power and telecom, have not kept pace with IT expansion. While the government promises uninterrupted power supply, the reality is far removed, and many ITES firms maintain their own back-up systems. This cranks up costs.
• The city’s public transport infrastructure is also weak and this has resulted in many people buying their own vehicles, thus overburdening the roads.

According to Nasscom, the ITES industry in India is experiencing its third growth wave — both in terms of geographical areas of operation and services offered. In the first phase, the industry was dominated by captive centres of large multinationals such as GE, American Express and Swiss Air, who set up operations in leading metros like Delhi and Mumbai. In the second phase, the growth attracted numerous entrepreneurs (in many cases, employees of multinationals who quit their jobs to set up their own ITES ventures) again in and around Delhi (NCR) and Mumbai (including Navi Mumbai). The third phase has been more geographically dispersed — with new locations emerging—such as Hyderabad, Pune, Bangalore, Chennai, and more recently, Kochi.

ITES market segmentation
The Indian ITES industry is segmented along the following lines:

• Customer interaction services (including call centres)
• Back office operations/revenue accounting/ data entry/data conversion (including finance and accounting/HR services). Verticals such as banks and aviation require large-scale data processing and data based decision-making capabilities. Raw data and/or paper documents are sent to remote locations (IT-enabled destination) where data entry and necessary reconciliation is carried out.
• Transcription/translation services: Medical transcriptions involve the transcribing of medical records dictated by doctors or other healthcare professionals into either a hard copy or electronic format. Doctors overseas record their findings into a dictaphone and the sound tracks are transferred through datacom links to ITES companies specialising in this area.
• Content development/animation/engineering/GIS: India’s strength lies in low-cost, high quality manpower. With the animation industry slated to be worth about $70 billion by 2005, much of the work will be outsourced to countries like India.
• Other services including remote education, data search, market research and network consultancy and management.

Current trends indicate that insurance, banking and automotive are the key verticals opting for these services within the ITES segment. In terms of service lines, according to Nasscom, telesales and credit/debit card services are the major services lines. In terms of the popular ITES and BPO models being followed in India, captive centres are the most prevalent. Captive centres are home to roughly a third of all professionals in ITES.

Mohandas Pai says Bangalore has the talent and infrastructure needed to become a BPO destination

Business Process Outsourcing (BPO)
MNCs and Indian corporates are increasingly outsourcing key business functions and related IT operations. This is largely due to the trend of focusing upon core business capabilities and outsourcing select business functions to expert partners. BPO involves taking a set of activities and taking on the responsibility of reengineering the operation process. Outsourcing takes place in areas such as finance, health, accounting and human resources. Globalisation is the other key driver of Business Process Outsourcing.

Bangalore’s BPO story has just begun. Today many software services companies are tapping their existing client base by offering BPO services. The opportunity for Bangalore lies in convincing existing call centre players that are expanding into BPO—who are looking at other destinations—to make their foray in Bangalore itself. Definitions of BPO vary. Some call centre companies claim that they are into “call centre BPO,” others define BPO as non-voice processes in finance, HR and administration. Here is a description of the main BPO players in Bangalore, and an analysis of where they’re headed.

India Life Hewitt
India Life Hewitt is India’s first ISO 9002 certified HR administration outsourcing company. The company uses an ASP model to offer online access to payroll, pension and other related information to employees and employers of client organisations. India Life Hewitt is currently dealing with employee retirement benefits of 2.7 lakh people.

India Life offers services for handling pension and payroll administration, including handling of income and deductions, regulatory reporting, implementation of best practices and providing an HR-MIS system to its clients.

Another service is benefits consulting. In this segment, the company offers actuarial valuations (a complex calculation of future liabilities), pension, gratuity, leave encashment, special projects for restructuring or harmonising pension plans, a customised employee benefits referral manual, conceptualising, structuring and implementation of Employee Stock Option Plans (ESOPs), specialised legal advice for retirement trusts and employee benefits and Voluntary Retirement Schemes (VRS).

India Life Hewitt has 250 clients, including Indian subsidiaries of many Fortune 500 companies. Its clients include Philips India, ICICI, Siemens, IBM India, Volvo India, SAP, Novell India, LG Software, Motorola PagePoint, Intel Asia Electronics, Sun Microsystems, Tata Communications and Texas Instruments India.

• Strengths: India Life Hewitt is the strongest player in the domestic market in HR outsourcing.
• Weaknesses: The company needs to tap overseas markets for future growth.
• Opportunities: It can look at other segments within BPO apart from HR.
• Threats: New entrants in the BPO segment could end up giving it tough competition.

According to K Ganesh, in Bangalore, unlike Chennai or Hyderabad, one does not have to train people to make them accent-neutral

Crossdomain
Founded in late 1999, Crossdomain is funded by ICICI and an angel investor. It offers accounting and employer services. The accounting services typically comprise back-office operations. Specific services under this include fixed assets management service, asset control, MIS and statutory requirements, monitoring capital budgets and capital work-in-progress management. Employer services cover every aspect of the employer-employee relationship, including payroll processing, claims administration, retirals benefits administration, travel and local conveyance claims processing to ESOP management.

Crossdomain has a NeoQA certification, and is also looking at the eServices Capability Model (eSCM).

Crossdomain’s clients include Aditi Technologies, Bennett & Coleman, Cisco Systems, Citrix Software, DHL Worldwide Express, Hewlett- Packard India, Honeywell India Software Operations, MphasiS BFL, Pizza Corner, Reuters, Standard Chartered and Talisma.

• Strengths: Its MNC clientele will help Crossdomain address markets abroad.
• Weaknesses: The company needs to de-risk its business interests from a purely domestic base and start looking overseas.
• Opportunities: The biggest opportunity for the company lies in extending its relationship with MNCs globally. Clients like Standard Chartered, Hindustan Lever, and others could look at outsourcing their business processes from other geographies, to it.
• Threats: Some of its MNC clients like Standard Chartered may outsource more work to their captive centres.

Progeon
Progeon is an ITES company launched by Infosys. The company is planning to tap Infosys’s existing software clients for the BPO business. It offers banking credit/debit car services, including check processing, mortgage loan servicing, collections, customer account management and treasury operation management. Another area is insurance and healthcare, where Progeon offers services like claims processing, transaction and re-insurance accounting, statutory reporting, annuities processing, benefit administration and security client account management. Rounding out the service offering are cross-industry services such as e-mail support, customer service, product support, help desk and chat monitoring.

Progeon does not have any specific certification as yet, but it has substantial expertise in financial services and CRM.

• Strengths: Infosys’s strong management expertise and experiences in the US market are the company’s biggest assets.
• Weaknesses: Winning in the BPO space requires strong domain expertise. Progeon lacks the early-mover advantage. Moreover, business dynamics in BPO are entirely different from those in IT services.
• Opportunities: Progeon has access to Infy’s blue-chip clients who could potentially outsource ITES business to it.
• Threats: Existing players in the market with an early-mover advantage (like MsourcE) pose a serious threat to the company.

The following players in the industry are focusing both on call centre and BPO services. They can afford to focus on both these segments because of their domain expertise and capacity.

MsourcE
MsourcE established its Bangalore centre in mid-2000. It has been one of the early movers in offering call centre, help desk and BPO services from Bangalore and Pune.

The primary investors in MsourcE are MphasiS Corporation and Barings India Investment. MphasiS owns 74 percent while Barings India owns 22 percent.

The company offers services for inbound call centres (customer service, help desk, order processing and claims initiation) and outbound call centres (sales, collections, lead generation, data collection, market surveys). Under transaction processing, MsourcE offers data entry for new accounts, handling of correspondence and claims processing. Then there is content creation, in the areas of simulation, e-learning, e-publishing and website maintenance and support. E-mail processing, help desk and chat-based support are the Web services offered by MsourcE.

MsourcE operation centres in Pune and Bangalore are certified for ISO 9001:2000. MsourcE is also in the process of implementing Six Sigma for all internal processes. The main expertise of the company is in financial services.

Citibank is one of MsourcE’s largest clients, apart from several credit card and consumer finance companies. MsourcE provides services to eight clients in the US and three in Europe.

• Strengths: The company has an early mover advantage, and also access to clients of its parent, MphasiS. The company is already a profit-making entity.
• Weaknesses: 90 percent of its business is voice-oriented; the company needs to look at HR and accounting.
• Opportunities: Existing clients like Citibank have the potential to outsource more work.
• Threats: Being an early mover most new entrants poach talent from established players.

ICICIoneSource
ICICIoneSource was ICICI’s foray into BPO. The company acquired Customer Asset in May 2002. ICICIoneSource is capitalised for $40 million, which makes it one of the best-capitalised companies in the offshore BPO space in India. The company offers Financial Sector Transaction Processing (FSTP) and contact centre services across sectors. Since its inception, it has handled over eight million transactions across multiple channels.

The company offers several services in the areas of transaction processing and contact centres. It provides transaction processing services for five verticals in the financial services domain—retail banking, credit cards, insurance, mortgage and asset management. The contact centre services include multiple channels (voice and Web) and addresses solutions across verticals, including financial services, travel, retail, telecom and media.
On the certification front, the company has completed the COPC baseline audit and adopted the BS ISO/IEC 17799:2000 IT security standard. It has ten international clients.

• Strengths: ICICIoneSource derives financial strength from its parent ICICI. It also has a strong domain expertise in financial services.
• Weaknesses: The company is over-dependent on the finance vertical; it needs explore other verticals.
• Opportunities: Looking beyond ICICI is the largest opportunity for the company.
• Threats: Players like MsourcE who have substantial expertise in the finance vertical could offer tough competition.

Call centres
The call centre business is expected to grow to Rs 3,000 crore in 2002-2003 and maintain a 45 percent growth rate for the next few years. The advantage of an English-speaking population, low-cost manpower and quality service has led many companies to outsource operations to India. Bangalore has attracted many call centre companies, both captive and third-party. A negative trend (for Bangalore) is that some call centres that are planning a BPO foray are looking at destinations like Kochi and Hyderabad. 24/7 Customer, for instance, is planning a 1,200-seat BPO operation in Kochi.

A few years back, call centres were primarily offering phone-based support. The Internet has changed the dynamics of the business and e-mail management and support have evolved to be more effective and efficient as compared to traditional voice support. Bangalore has both large and small call centre players. While the bigger ones like 24/7 Customer and iSeva are planning to grow further, players such as iBackOffice are finding the going tough.

Services offered by call centres include:

• Phone support: This includes inbound and outbound activities including sales, customer service and technical support over the phone.
• E-mail response: E-mail is fast becoming a popular means of communicating with customers.
• Live chat: With over 66 percent of online customers abandoning their online purchase due to lack of real-time customer service, companies with an online presence need a partner capable of increasing sales transactions through live chat.
• Telemarketing: This includes telesales and collection and it uses technologies such as predictive diallers.
  There are several prominent call centre players in Bangalore. Here we analyse the strengths and weaknesses of the larger ones.

According to L S Ram, shortage of power remains Bangalore’s only major drawback

24/7 Customer.com
The company started in April 2000 with a 4,000 sq ft office in Bangalore. The initial focus was on e-mail management because of the dot-com wave—the company had many dot-com clients. By August 2000 the management realised that voice-based business had more potential for generating revenues. In February 2001, it started a 20-person pilot project for voice-based support for one of its clients.

24/7 Customer was the first Indian contact centre to receive the ISO 9002 certification. It is also the first in India to be awarded COPC-2000 certification by COPC (Customer Outsourcing Performance Centre), the leading authority in contact centre operations.

The company provides inbound and outbound phone support encompassing sales, customer service, technical support, help desk, and collections to Global 500 corporations spanning several industry verticals. 24/7 Customer.com manages telemarketing campaigns for many US-based clients using qualified databases and predictive diallers. The company also designs, implements, and manages targeted e-mail campaigns for its clients, and offers live chat services as well.

The company has expertise in the verticals of financial services, healthcare, travel and logistics. It is planning to launch its BPO operations in Kochi with 1,200 seats, and also a Hyderabad call centre with 500 seats.

• Strengths: The company banks on its strong vertical expertise in finance, travel, logistics, and healthcare, which helps it address a broader market.
• Weaknesses: Exposure to many Internet firms.
• Opportunities: The BPO foray is a great opportunity for the company.
• Threats: With software service companies getting into ITES, pure BPO players could face problems.

iSeva
Started in November 1999 in the US, its India operations were launched in March 2000. Mortgage sourcing and asset management for banks are its areas of specialisation. The services range from outbound and inbound services, to e-mail based customer service. iSeva’s outbound services are designed to help its clients in telesales and outstanding collections. iSeva also employs technologies such as predictive dialling and sophisticated data capture and analysis. Inbound calls include customer billing inquiries, customer service, technical support, order taking and other customised applications.

iSeva also offers inbound e-mail response services. In addition, outbound e-mail campaigning and analysis capabilities help target offers for effective customer acquisition and retention.

With expertise in financial services and technology support, iSeva has obtained ISO 9001:2000 certification.

• Strengths: iSeva has strong domain expertise in asset management and mortgage sourcing.
• Weaknesses: Most clients today are insisting on location redundancy, which the company has to think about.
• Opportunities: The company can leverage its domain expertise in financial services and plan a foray into BPO.
• Threats: Most new entrants poach talent from established players.

iBackOffice
Started in October 2000, iBackOffice is a provider of outsourced customer and technical support services. The company offers traditional voice support and Web-based contact channels such as e-mail, chat and remote assistance. The company is a venture-funded organisation headquartered in Orlando, Florida. The company has no certifications; its expertise lies in order processing and supply chain management.

• Strengths: It makes a good acquisition target.
• Weaknesses: Being a new entrant, the company lacks the capacity to take up large projects.
• Opportunities: The company can divest equity or sell-off to a large player.
• Threats: With the ongoing industry consolidation, players like iBackOffice, that lack financial muscle, will find the going tough.

Captive centres
A global company could set up an ITES centre in India to take care of its own needs and serve as an in-house support cell. General Electric, Hewlett-Packard and HSBC have captive centres in Bangalore. Outsourcing to a third-party vendor involves risk. Companies may not want to share critical financial data or information about their clients with outside vendors. Captive centres are engaged in offering call centre, BPO and other ITES services to their parent companies. Most financial services companies such as Citibank and HSBC are primarily outsourcing call centre services. Companies belonging to other verticals like manufacturing and travel are outsourcing HR and accounting-related services.

The Indian ITES story started when GE announced its captive centre in Delhi. GE would have been the largest client for Indian ITES players, but it chose to establish its own centre. In the short-term, this may appear to be a business loss for many Indian ITES players, but GE’s initiative has established India on the global ITES outsourcing map.