From Riding Globalization to Digitalization - Indian BPO Sectors

From Riding Globalization to Digitalization - Indian BPO Sectors

Suvrata Acharya, Global Delivery Head, NIIT Technologies

New work and labor classifications are created as and when the world goes through various social and economic cycles. Industrial age established the foundation of labor classification. It was augmented by Information age in late 20th century which helped in building global supply chains and brought an economic revolution known as ‘globalization’. Various aspects of the globalization are well documented by Thomas Friedman in the book ‘World is Flat’. Today, another revolution known as ‘digitalization’ is leading the transformation of industry whereas globalization is facing political backlashes in developed economy. Indian BPO sector which is known as an output of globalization, needs to embrace digitalization for not only its own survival but also to tap into future business potential.

The decade from 1998 to 2007 is known as the golden period of globalization. The opportunities generated during that period helped in massive growth of Indian BPO sectors. There were few factors contributed in globalization. During industrialization period, a product was manufactured in one country and then exported to other countries through various trade routes. Manufacturing was primarily done using the local workforce.The service industries such as banks and insurance invested heavily on infrastructure and local manpower in their own countries. Around early 1990, the computing and telecommunication cost had started dropping significantly thanks to rapid innovation and huge investment. This created the opportunities for manufacturing industries and service industries to leverage on cheaper workforce and infrastructure globally. The new value chain created the opportunities for the talents globally. While China helped in creating a global supply chain for manufacturing, India helped in transforming the service industry.Information technology helped developing countries like India to insert their productive talents into the new global value chain of service industries successfully.This translated into faster growth for BPO sectors.

But 2008 financial crisis, which was caused by US subprime crisis, had put a break in their growth trajectory. While the sector grew at 37 percent CAGR between 2004 and 2007, the growth was just 4.4 percent CAGR between 2012 and 2016. Started as a labor arbitrage model, the core offering from BPO sector was low end manual operations such as call center, back office data processing and compliance activities. As few other countries replicated the cost arbitrage model, Indian firms adopted new strategies to differentiate over other those countries. They developed the expertise in lean and six sigma methodologies and automation for continuous process improvement and enhancing the operational efficiency. More value added offerings such as knowledge management, different commercial
models were augmented with the existing models to stay competitive.

A series of political events in last four years has put the future of globalization at risk. Rise in popularization in major world economies has forced the world towards deglobalized economy. All the countries, who were earlier rode the globalized wave, are now challenged for growth. Automation has taken away the traditional BPO jobs. Trade restrictions have forced firms to prefer the domestic workforce over outsourcing. Bots have taken over the data entry and call center jobs from humans. All these factors have put pressure on BPO sectors to reinvent their business models.

The BPO sector must start building a business model which can commoditize the new tasks and still leverage on the existing BPO success factors

The BPO business model was developed primarily on the following four factors: globalization, labour arbitrage, manual tasks and information technologies. While future of globalization is uncertain, digitalization has helped in building a connectedsocial eco system. Prior to digitalization, the IT applications were monolithic. Manual efforts were needed to complete a business process that went through multiple applications. Because of digitalization, these monolithic applications were replaced by integrated platforms that reduced the manual intervention. Hence, old BPO jobs are needed to be upgraded to new jobs that are relevant to digitalized world. As the old jobs becoming irrelevant, BPO sector needs to focus on highend strategic processes created by the digitalized economy. They need to start building a business model which can commoditize the new tasks and still leverage on the existing BPO success factors.

As the recent trend suggests, offshoring is moving from the manual data entry for back office to front office activities. The client and product research activities are done by the people at offshore. The entire sales support is provided from offshore. Product companies have started outsourcing end to end quality control and risk analysis processes.The diversification of globalized workforce is helping to bring faster innovation in their products and services. Instead of call center, staffs at BPO are listening to customers’ voice on social network and are providing the input to product development team. In place of data entry operators, data scientists are helping to train AI-based models and solving algorithmic biases. Also, instead of just focusing on single task, the newly designed job is responsible for the overall client experience. Few big financial services firms have already started leveraging on this new model and started moving their high value activities to India.

India churns out millions of graduates every year. Most of them are engineering and MBA graduates. India has the potential to generate new jobs faster to meet the need of digitalization. BPO sectors already have the proven discipline that help in success of these jobs. So, by developing these talents to participate actively on digitalized economy will help BPO sector to come back on growth trajectory. This will also make India as a hub of service innovators to cater future digital world.