BPO SEGMENTS: Opportunities Galore

Business process outsourcing (BPO) starts with understanding the processes

and culminates in improving those processes. Most of the challenges of BPO

vendors, hence, come directly from what kind of processes that they are trying

to execute.

Some of the processes are directly dependent on the vertical industry. They

are often called by the name of the vertical. For example, healthcare provider

services, does indicate that one has to handle processes such as medical coding,

billing, and collections. Similar is the case with publishing services.

On the other hand, there are processes that are common across verticals.

Customer service or telemarketing is something many B2C businesses carry out,

more or less in similar manner. These, naturally, were the first processes to be

outsourced, and hence, are more mature. Also, more often than not, work on the

principle of scale and often commoditized.

While selecting the segments to focus on, we had a simple challenge–whether

to write about the most prevalent segments or to write about the emerging

segments. But keeping on line with the spirit of the issue–understanding the

industry–we decided on the latter. Except for some numbers, we would have

added very little to the understanding of the industry had we written about

customer service or claims processing.

We took up five emerging segments, one dark horse segment, and one segment

that is under threat. The emerging five are receivable management (a horizontal

across many industries), healthcare provider and payer services (industry

specific), tech support (largely industry specific but including enterprise

helpdesk as well), airlines (industry specific), and HR (horizontal across many

industries). We included publishing services as an afterthought. Here was some

BPO services that was happening much before the term was coined and yet, many in

the BPO industry know little about it. And finally, telemarketing, a service

that is prevalent, but whose future is in question because of the DNC

regulations in the United States. One area that we almost write on but could not

get enough information in time was equity research, a fast emerging opportunity.

The nature of the segments are different; so are the way they have been

presented here. For example, in somewhat established segments like tech support,

airlines, and telemarketing, we have tried to provide numbers. In new segments

like HR, receivables management and healthcare, we have tried to show the

opportunity. And in publishing we have just introduced the segments to get the

message across that this is being done at a grand scale in India.

Some of these segments, we have covered in detail in the past issues. Some

others, we will, in future. Yet others may emerge and the next year’s list may

look completely different. 

Airlines BPO: Jet, Set and Go

It has moved on from being predominantly captive to a vibrant third-party

industry in just two years

Contrary to common perception, the airlines industry has not been a prolific

outsourcer, despite its highly competitive nature. However, in the last 3-4

years, airlines have started outsourcing. That is also the time when India saw

the process offshoring wave. So it was no coincidence that India has already

become the hub of airlines BPO. According to studies, the revenue from the

airlines process outsourcing could reach $50-60 million in a few years.

Airlines BPO is very distinct from other services in more ways than one.

• Offshoring preceded outsourcing.
  
  Both Lufthansa and Swissair came to India as early as 1992. British Airways
  
  came in 1996, much before the 1999 Nasscom-McKinsey report. All the three
  
  started as captives.

• It is still by and a large a
  
  specialists’ game. It has been dominated by either airlines offshoots like
  
  WNS, AFS, Aviation Solutions, and RDM or specialized IT-services companies
  
  (like Kale Consultants and Navitaire). Only a few of the big Indian BPO
  
  companies execute these processes.

• India is at the center stage.
  
  Almost all big airlines BPO companies are in India. India could get more
  
  than half the airlines work in two years time.

The Industry



The industry, which was predominantly captive just two years back, has

become a vibrant third party industry. WNS, the no. 1 among the bpOrbit Top 15,

started as a British Airways captive. It changed its ownership pattern in 1999

with Warburg Pincus acquiring majority stake. Apart from British Airways, it has

around 10—15 clients. British Airways is also opening up a captive call center

in Gurgaon. The trend started by WNS was followed by AFS after Swissair sold it

to partner TCS in early 2003. AFS is now ramping up its manpower from 400 to

over 2000.

Reservation Data Maintenance India (RDM) which was started in 1992 as a

Lufthansa captive, later became a strategic JV between Lufthansa Commercial

Holding and the Bird Group. Another player to start as a captive before taking

other clients is Mercator, the IT division of the Emirates Group.

The lucrative business prospect is now attracting even broad-based BPO

players. Wipro Spectramind staged a coup de grace by bagging a contract from

Delta Airlines by competing against WNS. Daksh is the latest to enter the fray.

They join the only historically independent airlines BPO company, Mumbai-based

Kale Consultants. The business is believed to have generated close to $2.5

million for Kale in 2002-03 and is likely to increase to $4-4.5 million by the

end of 2003-04.

Prominent challenges for BPO companies are the availability of skilled

manpower. Currently, BPO players recruit fresh professionals and train them.

With more and more airlines waking up to the opportunity, this will be an

interesting area to watch out.

Receivables Management: Hidden Goldmine

Receivables management is no cakewalk. The opportunity is huge but needs

careful tapping

Account Receivables Management services or collections, is one out sourcing

opportunity that is in true growth mode in India, though its potential is far

from being exploited by Indian companies. The good thing is that Indian

companies have woken up to the opportunity and are taking the first few steps to

tap the opportunity. After a few specialized companies, now broad-based BPO

companies are trying to tap this area.

According to the Association of Credit and Collection Professionals,

creditors placed a total of close to $135 billion delinquent consumer debt for

collections in 2000, almost double the $73 billion of 1990. According to the

Kaulkin Report on the US collections industry, there were more than 6,500

collection agencies in the US in 2000. It also notes that outsourcing is likely

to grow at a whopping 25-35 percent annually. This is good news for India.

According to the US Bureau of Labor Statistics, bill and account collectors held

about 400,000 jobs in 2000, of which, about one in six worked for collection

agencies. The bureau says that this number will grow by 35 percent by 2008.

Today, Indian third-party companies together does not employ more than 3500

people.

For Indian BPO companies targeting this growth opportunity, the opportunities

depend on their market-entry strategy. They could consider four models of client

acquisition.

n Direct outsourcing contracts with

the clients: This is the most direct model with a far better long-term

growth prospects but also the toughest model to follow, because of direct

competition with established collection agencies in the US. Moreover, you have

to register as a collection agency in each state that you want to carry out

collection activities in. Epicenter, EXL, Msource, and to some extent, Global

Vantedge follow this model.

n Partnership with a US collection

agency: This is a good model to get into the market. Global Vantedge (with

OSI), HCL (with D&B Receivables), Zenta (with NCO), and Tracmail (with NCI)

have followed this model.

n Partnership with debt-purchasers:

This is one opportunity that is low volume but better on margins. Worldzen has

already started on it in a small way. But not many have started.

n Getting into debt purchasing:

A logical evolution of the earlier model, but it is too early for Indian

companies to think about it.

Challenges



Receivable-management carries a few challenges that are distinct from other

BPO opportunities.

Risk: Collection companies are often paid a percentage of the total

collection–a higher risk game.

Need for registration: Unlike many other BPOs, the client acquisition

in receivables management is not just about having a few sales people in one or

two locations. For carrying out collections work in a state, most states require

a company to register separately in the respective states–a huge task.

Building skills: Among BPO jobs, collections probably require the most

skills among agents. The dos and don’ts of the US Fair Debt Collections

Practices Act does not help much either.

Pricing: The success rates are often dependent on the stage of debt,

target vertical and geographic areas, which vary vastly from each other. Indian

companies should be able to learn them and reflect that on their pricing.

Studies by bpOrbit suggest third-party receivable-management companies could

soon fit into one of the four categories listed below:

n Specialist Indian collection

companies (Epicenter, Global Vantedge etc)

n F&A companies whose portfolio

includes receivables management (EXL, Msource etc)

n Multi-service companies who act as the offshore center of the US

collection agencies (Zenta, HCL, Tracmail)

n The US collection agencies’ own

offshore delivery centers. A few are already in the pipeline.

Future Trends



The next 12-18 months will probably see one or more of the following.

n A beeline by US-based collection

agencies to India, either directly or through partnerships

n A lot more late-stage collections

coming to India

n A few Indian companies seriously

looking beyond the agency partnership route, focusing on end-clients and debt

purchasers to strike a balance between volume and value

n A lot more investments and

acquisitions

Publishing Services: Write it Right

One BPO opportunity that can act as the great leveler between bigger and

smaller locations

If processes like HR and equity research are more discussed than done in

India, publishing services is one area where much happens with little media

attention. Companies like Macmillan India, Thomson Press, Techbooks and

Datamatics have been around for more than 10 years, before BPO or offshoring

became popular.

Like call centers, these services came to India because of two factors–lower

cost and English skills. However, there is one major difference. While call

centers require people with good spoken English skills, this requires people

with excellent command over written English–something that is considered more

important in Indian curricula than the ability to speak English. This area also

requires the services of academically-qualified people in other science and

humanities disciplines.

For years now, Indian companies have proved that they can do this not just

cheaper but better. Look at the clients in the table below. Oxford University

Press, Cambridge University Press, McGraw Hill, Blackwell, Pearson, John Wiley,

Macmillan and Taylor & Francis–the giants of publishing.

Publishing services differs from most other BPO opportunities.

• Processes are extremely
  
  domain-specific. This has resulted in focused players. Two of the Top 15
  
  bpOrbit companies are in this domain.

• Despite being process-centric
  
  work, publishing services does not require extraordinarily robust
  
  telecom infrastructure, resulting in facilities that have come up in smaller
  
  locations.

• n The clients prefer to
  
  work with multiple vendors. So it is not surprising to find the same
  
  names in most client lists provided in the table.

• Scale does not matter much.
  
  Scale is not necessarily a parameter that the client looks at while
  
  selecting a vendor. Smaller companies like SR Nova and SPS have the same
  
  kind of clients as bigger ones.

• It is a mix of short-term and
  
  long-term contracts. Periodical publishers usually go for long-term
  
  contracts while book publishers go for projects.

Despite being a major opportunity, the sector has not got the attention that

it deserves. An opportunity that started out before the big wave of technology

enablement came in, technology acts as a differentiator in this business.

Companies often boast of their technology, proprietary workflow processes and

tools. The advent of XML has changed the way the whole industry works.

This is one opportunity that needs government encouragement the most because

it can actually act as a great leveler among the smaller and bigger locations.

As it is, the standard of English education in most southern and eastern states

is of high quality. However, because of the way English is taught, and because

of the social environment, not many from these can speak fluent English, despite

mastery over the written language.

These places can be good potential destinations for these kinds of services.

In fact, places like Kolkata are a favorite hunting ground for companies like

Techbooks. Some also operate from smaller locations like Pondicherry.

HR Outsourcing: Uncharted Waters

Indian BPO cos are yet to wake up to this new opportunity

According to Gartner, HR-based BPO revenue is expected to grow from $39

billion in 2002 to $51 billion in 2004 and would represent 39 percent of all BPO

revenues. Ironically, Indian BPO companies do not seem to be enamored by this

opportunity, at least till now. Otherwise, how would one explain the fact that

HR does not even feature in the fairly diverse services portfolio of bpOrbit Top

15 companies.

It is not that India doesn’t have the capability. In fact, a lot of work

has already come to India through MNC BPOs like Exult, Accenture and Efunds.

ADP, another big name in payroll and employee services, is on its way to India,

according to industry sources.

Interestingly, this is one area where many Indian companies have tried to

exploit the Indian domestic market opportunities. Companies like CrossDomain and

India-Life Hewitt, who have done fairly well in domestic market, are of course,

now eager to tap the offshore opportunity. The only exception is Chennai-based

Secova eServices, which is looking only at the offshore market. But Secova was

set up only in July 2003.

A major reason for the absence of HR BPO companies could be a lack of domain

expertise.

As such, the biggest challenge faced by an offshore HR BPO company today is

the lack of track record and credibility backed by client references.Â

Besides, lack of in-depth domain knowledge coupled with lack of knowledge about

specific legal, regulatory and compliance structures in the HR space in the US

and UK make things difficult for potential Indian HR BPO service providers.

Being a horizontal offering the complexity index of HR Operations is high and

would stand at 6.5 on a scale of 1—10, as compared to CRM/claim processing

with a 2—3 rank. HR processes also occupy a higher position in the value

chain. The ‘HR operations’ of any company is unique and handling them

demands high levels of customization. All this has meant that HR outsourcing has

largely been untapped.  

However, the silver lining here is that most BPO companies do agree that

HR-related business processes do offer big-time opportunities. In fact, some

have either got into the HR BPO space (eFunds) or are seriously exploring it (Infowavz).

And the ones like India-Life Hewitt and CrossDomain who have built up expertise

servicing the domestic market are now looking at the offshore market. Cross

Domain is targeting revenues of $ 2.5—3 million from North America alone in

2004.

It is interesting to note that HR offers opportunities beyond the US and UK.

For example, India Life Hewitt is actively scouting for business in the

Asia-Pacific region. In April this year, the company acquired a majority stake

in Singapore-based Embrace 2002 Pte Ltd with the objective of building

capabilities to offer a pan-Asia Pacific solution to large corporations besides

expanding to 12 other countries in the region. The acquisition added customers

like Singapore Technologies Group, BengQ, and Nokia.

Payroll and benefits services are the most popular in HR BPO and are driving

the growth of the market. Companies outsourcing HR processes expect to increase

their investment in HR outsourcing in the next 24 months. One of the main

drivers for this growth is the growing perception among enterprises that HR BPO

is less risky and offers good value for money. However, most are likely to

outsource for a short-term in the beginning before going for long-term

engagements.

The opportunity for India lies in payrolls- and benefits-processing.Â

This is because these processes are HR intensive and at the same time, don’t

require in-depth knowledge/tracking of legal and regulatory issues, that change

from time to time. There are also strong opportunities in the voice-based

HR BPO work (pre-employment screening work such as reference checks, security

checks and background checks).

Healthcare Services: Health is Wealth

Chennai becomes a hot destination as new players make it a world-class

cottage industry

The United States spent $1.42 trillion in 2002 and this figure is likely to

touch $2.47 trillion in 2010. About 85 percent of this is spent indirectly as

payments made by health insurers and not patients, to healthcare providers.

Healthcare providers (providers) prepare bills and send it to insurers (payers)

who in turn process each claim and decide on the payment. The paperwork on both

sides provide great opportunities for Indian BPO service providers.

Provider BPO Services



Quite a few companies provide medical coding, billing, and collections

services to healthcare providers and medical billing companies in the US. That

number is on the rise, prompting us to call it a cottage industry. And Chennai

is becoming a hot destination. The challenges, however, are many. The biggest

one is to sell to a fragmented market. While that requires a large marketing

spread, a far bigger challenge is to convince them to outsource to a far-off

land, about which they have no knowledge.

The billing parameter is also totally result-oriented, with payment decided

as a percentage of collection. That means the risk is higher. While the average

revenue realization per employee is similar to some voice services–at a rate

of about $900—1100 per month on a FTE–the profitability is slightly better,

because of a better utilization of infrastructure–the same infrastructure is

used by the coding and billing staff in the day time and by the collections

staff in the night.

This space will see a lot of consolidation. Indian BPO companies that venture

into this space first would be ones that have exposure to the payer side

services and hence the domain expertise, if not process expertise. In fact, the

trend seems to have started with Perot Systems who has acquired Vision

Healthsource for $10 million.

Payer BPO Services



The payer side outsourced processes are quite similar to other insurance

claims processing work, except that here there is a need that the people

understand medical terminology and on phone have to deal with professionals, who

call from billing/collection companies and providers, rather than end users.

Large-scale BPO companies do club it with their other insurance practice, as the

process is largely the same. Big Indian BPO companies doing payor work include

Daksh, Hinduja TMT, ProcessMind, Vee Technologies, Nipuna, and Worldzen.

Companies who have outsourced include Aetna, Cigna and IMG Health. United

Healthcare has set up a center of its own.

While some health insurance companies are big enough, almost two-third of the

market is held by public insurers, who may not offshore. The private insurer

market again is divided among insurance companies and the employer insurance.

Among private insurance companies, with the exception of a few Aetnas and Cignas,

most of the market is shared by small, localized Blue Cross Blue Shield (BCBS)

companies, who are less likely to outsource, though unconfirmed market grapevine

has it that some companies are considering India.

Health insurance managed by large employers, where the claims administration

is carried out by TPAs, are unlikely to be outsourced, unless absolutely forced.

Many companies providing payer side services are likely to add provider side

service to their portfolio and vice versa. Some M&A among the medical

billing companies, TPAs, niche BPO players and bigger BPO players is also

expected.

Tech Support: Hotshot Troubleshooters

It’s one area where India can continue to remain bullish

Technical support consists of two distinct BPO processes–technical product

support on behalf of product vendors and enterprise IT helpdesk for user

organizations. Traditionally, the first kind of work has been outsourced to

contact center companies like Convergys, Sykes and Stream whereas the enterprise

helpdesk has been part of the end-to-end IT outsourcing bundle, going to

software services companies like EDS, IBM, CSC and ACS. According to IDC, this

market is expected to reach $28.4 billion globally, by 2006. India has been able

to attract both. While the fundamental reason has been India’s technical

manpower, their evolution have been different.

Product support has been driven by two factors. The first is the realization

by MNC IT companies that the country can be a good product-support base.

Companies like Microsoft, Dell, HP have leveraged this strength of India. The

second factor was the emergence of some Indian techno-preneurs who worked with

these companies and saw the opportunity, typical examples being Talisma and

Vcustomer. Typically, these are high volume, L1 and L2 support targeted at the

consumers. Popular outsourced services include hardware/software support, ISP

support, website support, e-mail/chat based support, trouble ticket generation

and remote monitoring with clients now increasingly demanding. This support is

centered around customer centricity, operating efficiencies and cost

effectiveness.