I speak at conferences all over the world including world-class events hosted by Sourcing Interests Group (SIG) and IAOP. All three organizations are doing great work for their memberships on both the buy and sell side of the outsourcing transaction.
Here are my observations from this interesting event in New Delhi; they are a guide to today and a prediction for tomorrow.
First, the composition of the attendees at NASSCOM was breathtaking. NASSCOM is all about power networking with provider players who are currently in the glow of 18%+ growth. Almost all India-based providers had their CEOs for BPO in attendance or, in some cases, their CEOs. All stayed for the full event and spent tons of time briefing consultants and networking with each other to cross promote and drive the India brand. I never see this type of concentration anywhere else in the world. I think this may be one of the hidden drivers to India, Inc. growing from the force of the invisible hand of NASSCOM.
Also in attendance was an adoring India press that sees outsourcing from the opposite side of the world. They published huge columns all week focusing on NASSCOM predictions and growth issues.
No one seemed to care that no enterprise buyers were in attendance; in fact, the attendees seemed oblivious. If I went to one of the U.S.-based events and it had this attendee mix, the event owner/organizers would be in the restroom committing Seppuku ritual suicide for the shame of it all. Their direct reports would be waiting outside to follow them. At the U.S.-based events, attendance from enterprise buyers is key because provider attendees care for one thing – the opportunity to meet clients. A lack of such attendees would be a death knell for the event. In a surreal contrast, at NASSCOM the provider attendees took no notice – they were there to discuss macroeconomic issues, ways to work together for mutual gain and how they could improve service delivery to their clients. The dynamics of NASSCOM are truly impressive, and western providers would do well to take note.
Focus on Value and Rapid Growth
Industry legend Vikram Talwar (founder of EXL and one of my former E&Y partners) gave an amazing keynote speech. He pointed out a number of issues the sourcing industry must contend with, which included an exhortation to “stop the price wars” and focus on value.
The Indian providers will have trouble doing this because they rely on their own “experience-based” price benchmarks that are flawed and will result in constant low-ball pricing ahead of market need. Buyers, however, will gain from their passion for costly 18% growth.
Matching the current 16-18% growth rate in BPO and slightly lower for ITO was a huge topic for the attendees. Failure here is 12-15% growth. (!!!) Some providers with specialization by industry or function are optimistic that they can beat this year’s market prediction. Those without a specialization seem to be replacing the head of BPO and retrenching their strategies.
Benchmarking 2012 Pricing Changes
The keynote slot on predictions for price changes in 2012 was well attended, and everyone took copious notes. Providers were there to get a grip on where prices will be over the next 18 months. We have seen FAO prices reduce by five-seven percent on a like-for-like basis over the last 12 months and forecasts this rate to slow to three-five percent over the next 12 months. However, the range of current prices for individual roles varies greatly, reflecting the lack of market standards for labor rates. It was clear that Indian-based providers are struggling to control their constant price war mentality due to their reliance on internal price benchmarks. At this point, under pricing is their biggest challenge.
Some niche BPO providers are starting to gain scale in focused segments such as healthcare, analytics and knowledge management. Look for interesting value propositions in 2012 for segments of BPO not fully addressed in the past.
Account leadership gaps were one rumble I heard at NASSCOM. It sounds like many major providers are starting to have trouble staffing leadership positions as fast as they are selling new business. Training the next generation is now a significant problem that they need to address or India, Inc. will run out of steam.
Service management remains a challenge for many providers. With the 800-pound gorilla of growth and an amazing pool of India-based talent, you have to be inept not to make money in BPO. The economics are too overwhelming to not turn a profit. But as costs slowly creep up, providers could be looking at a less rosy picture by 2013, especially if currency exchange rates materially go the other way and there’s real local salary inflation.
How should you prepare for the future?
What does this mean for enterprise buyers? The India-based providers remain high quality and are focused on winning your contract since their business development efforts will remain strong for the foreseeable future. If you engage properly, you can plug into a great wealth of talent at an effective cost point. Fail to engage right and you take unneeded risks.
Western-based providers are facing a determined competitor intent on continuing that 18% growth. Given the western-based locations for your front offices with their infrastructure and sales costs, you need a competition strategy that is focused and differentiated.
India-based providers: It warms my heart to see intensity, passion and commitment result in high growth. But you could be entering an era similar to EDS in 1995, where talent development began to fall behind their years of growth, account management shortages developed quickly and the buzz reputation of über deliver no matter the cost quickly cooled and stalled. Talent growth in complex areas of need and a variety of other factors slowed and then stopped EDS’s unstoppable freight train of growth. HP acquired the provider in 2008. How will you prevent repeating history?