Local BPOs to ring in $6 bn revenues by 2012, says E&Y

The domestic business process outsourcing (BPO) market will reach $6 billion in size by FY2012, growing at a compounded annual rate (CAGR) of 38%, from the present $1.6 billion.

BPO services, which currently account for over 20% of the Indian IT industry (including hardware), was the fastest growing segment across software and services in India till FY2008, a study by consulting firm Ernst & Young showed.

Domestic BPOs outpaced the overall market by growing at a CAGR of 50% over the last five years, though on a smaller base, the study said.

“The Indian BPO segment continues to chart a strong year-on-year growth and has significantly matured in export service delivery capability and footprint,” Milan Sheth, partner, technology practice, Ernst & Young, said in a statement announcing the findings of the study titled Destination India: An insight into the domestic BPO market.

“The domestic BPO market presents a huge untapped growth opportunity in the banking financial services and insurance (BFSI), telecom, media, retail and the government verticals. Telecom and the BFSI sectors alone currently contribute over 80% to domestic BPO revenues,” he said.

These sectors are expected to grow at 20-30% over the next 2-3 years, increasing business for domestic BPOs. 

Cost-benefits, the value generated by third-party providers and manpower management issues due to rapid growth are the key growth drivers for domestic outsourcing, the study said.

“While service offerings in the domestic market will be predominantly voice based, over the next 2-3 years we will see an evolution that will include non voice based services and processes in HR and finance and accounting,” it said.

Though the profit margins in the domestic market are 30-50% lower than in the international market, the net margins are expected to gradually increase from 8-9% in 2008 to 11-12% by 2012.

Another interesting trend that is that the domestic market will consolidate and 8-10 large vendors will dominate, the study said.

Most of these players will move into tier II and tier III cities to tap additional resources at low costs.