India is a leading player in the rapidly growing Business Process Offshoring (BPO) services. The Indian BPO market has grown manifold. The Indian BPO industry faces a unique opportunity to enhance its role as a full-service provider. At the same time, there is urgent need to address untapped BPO market opportunities in India. With the above backdrop, this chapter is an attempt to analyse the drivers of BPO services and barriers to BPO services, the job losses and gains, the strengths and weaknesses of Indian companies in BPO services, to identify India's competitors in offshoring business activities, and to draw policy implications to gain from the BPO market using available theoretical literature. The chapter provides a detailed account of the capabilities, opportunities, and growth imperatives for the BPO market in India with significant policy implications for the stakeholders.
TopIntroduction
Offshoring outsourcing is the exporting of jobs from developed countries to overseas where labour and other costs are lower. Offshoring involves completing activities in locations that are external to a nation’s geographical boundaries (Kahai, Sara, & Kahai, 2011). In globalizing world, cheap telecommunications facilitate relocating of many jobs overseas. As globalization accelerates, the offshoring is likely to intensify as well. Outsourcing results in lower cost and greater efficiency in manufacturing and provisioning of better service to consumers (Sarkar & Reddy, 2006), thus, lowering the transaction costs (Coase, 1937), which serve as a “wedge” between the price that the selling firm receives and the price that the acquiring firm pays.
Offshoring in manufacturing has existed for some time, but offshoring in services is a relatively recent phenomenon. Offshoring involves replacing services produced domestically with imported services leading to job displacement at home (GAO, 2004). The Business Process Offshoring (BPO) refers to the practice of moving ICT-enabled back-office business processes to offshore low cost locations (Dossani & Kenney, 2003) due to availability of pools of talents (Farrell, 2004). To begin with, the BPO services were “low end” services using minimal skills-sets and data transmission costs. Overtime, Knowledge Based Processing (KPO) services involving higher-level skill sets and education have grown significantly (Joshi & Mudigonda, 2008), which includes sophisticated product development, research and development, financial analysis, advanced legal research, etc. (Kuruvilla & Ranganathan, 2010) facilitated by the expansion of the capabilities of the Internet (Kahai et al., 2011).
Knowledge work can be produced anywhere in the world (Friedman, 2005), however, the endowment, human capital and policy still matter (World Bank, 2007). Knowledge itself is a unique factor of production and its value does not diminish. A great deal of knowledge is tacit. It is difficult to transfer and its reproduction can be extremely costly (Foray, 2006). It also needs an environment to be harnessed effectively. Firms have rapidly started offshoring knowledge-intensive activities (Dossani & Kenney, 2003, 2006; Lewin & Peeters, 2006a, 2006b) including product development activities. North American and Western European companies are responsible for most of the higher-skilled knowledge-intensive offshoring worldwide (Agrawal, Farrell, & Remes, 2003).
Offshore outsourcing is an important global cost based strategy, especially for U.S. organizations, to shift BPO services to offshore destinations like India (Ghemawat, 2007; Carmel & Agarwal, 2002) using value based partnerships (Williamson, 1985) to get benefit from improved technology service (Lee & Kim, 1999; Lee, Huynh, Kwok, & Pi, 2003). Firms also locate intangible production tasks like research, design, management, and IT support to different countries (Oldenski, 2012). Indian companies are offering numerous BPO services. Recently, big IT companies in India have integrated BPO in their business model.