INDIA BPO INC: The First Movers

If the rise of the technology industry made the world take notice of the
quality of manpower that India has, it is the emergence of the service industry
as the central driving force of the new economic order that forced the developed
world to get overwhelmed by the quantity of manpower this country has.
Ironically, something that we Indians have noticed only when accounting for all
our failures and all our problems.

The BPO industry is very much a people’s industry. For the first time after
Independence, it seems this industry has the potential to provide a viable
solution to India’s problem of unemployment. What could be a better way to
measure this industry’s growth other than by measuring the people in the
industry? While revenue and profits are essential parameters to judge the
performance of a stabilized industry, for an industry that is still evolving, a
more fundamental parameter is needed–the people employed.

This issue complements our efforts in the previous issue (December 2003).
Last time, we measured the financial performance of the Top 15 India-centric
companies and explained their growth path–what kind of services they

provide, to which all industries and to how many clients–and analyzed their
performance, both quantitatively and qualitatively. We also identified seven
emerging companies who missed that list (in terms of revenue), but who have all
the potential to get into that exclusive list in the next few years. In
addition, the horizontal and vertical opportunities as well as top locations,
and CEOs’ visions completed that effort.

This time we have profiled the companies who made the world take note of
India’s capability–the captives–and those who put a decisive stamp on it–the
third-party service providers from US and UK. The Top 10 companies in captive
category are ranked in terms of manpower employed. In the MNC category, we
restricted it to seven, as we did not go beyond the cut-off figure of 500
people. Below that, the game is still wide open. This is followed by the bpOrbit
Power List (available at www.voicendata.com and in the bpOrbit supplement), who
are not part of any of the previous four categories, but still have a lot of
potential.

However, the big bonus is the list of bpOrbit Big 50 companies (in terms of
manpower). If all of us believe that number of people employed is the most
important parameter to measure the success of this industry for India as a
nation, then their categorization–Indian/MNC, captive/third party–becomes
secondary. The bpOrbit Big 50 are companies that could be captive, India-based
third party or an MNC third-party. But they are the largest employers.
Interestingly, one each, from each of these three categories, occupy the top
three places.

The New Year is here and the next financial year is around the corner. Until
the next annual survey, these two issues should be your guide to the Indian BPO
industry. While these do not compete with any research reports, with all
humility we can say, this are probably the most comprehensive guides that you
will find. But honestly, we are not satisfied. The journey has just begun...

bpOrbit Team: Shyamanuja Das, Balaka Baruah Aggarwal, Rajneesh De and
Vandana Sah

TOP 10 CAPTIVES: Day of the Captives

From the late nineties to the early 2000s, these companies are the ones who
took the initiative to come to India, thus making India the hub of global
offshore servicing. Even in 2002—03, when Indian third-party service providers
had established themselves and a long line of MNC BPOs were almost getting
settled, these captive units accounted for as much 58 percent of India’s BPO
exports, according to Nasscom estimates. And despite the fact that their number
was less than 15 percent of the total number of active BPO companies in India.

This can be explained in three ways. The most important reason is that by
starting early, they had stabilized by that time and had started getting
returns, whereas Indian companies were yet to get money, despite signing
contracts. Secondly, a few of them were big enough in size. So even though their
numbers were small, their manpower was large. However, another reason, which
many third party service providers point out, is that their cost structure is
high, because they still operate as cost centers. This, coupled with cost plus
transfer pricing, takes their topline higher, thus accounting for a higher share
of the total pie.

In any case, their contribution to the growth of the industry is beyond
dispute. Though there has been a continuing debate on captives versus third
parties, most companies on both sides of the debate agree that they are
complementary to each other and will co-exist. That is proved by the fact that
companies like Citibank, Amex, HP, AOL, and Dell who operate their own
facilities in India, have also been the most prolific outsourcers to Indian
companies.

Interestingly, many of the captives have turned third party. More, including
GE, are planning to do that. Next year could be a different story altogether.

As expected, unlike the first part of our survey, where the Indian companies
cooperated with us in terms of giving information, we did not get much
information from captive units, especially with the protests and backlash news
hogging media headlines. That is understandable and we hope, with those issues
settling down, we will be able to get a lot more cooperation from these
companies in the future.

Here is a ranking based on number of people, because that is the only logical
parameter that matters in captive units. In many cases, we have estimated
numbers based on the past data, recruitment and attrition figures and future
projections.

There is a big gap between No. 1 (the legendary GE) and No. 2. After that, it
is a gradual decline till the No. 10 company, the very little heard P&O
Nedlloyd.

1. GE Capital International Services

GE Capital has captured the world’s imagination with the scale and success
of its offshoring model from India. Though it was not the first one to try the
India offshoring model, the scale and diversity of processes made the world sit
up and take notice. It is not without reason that GE is credited with starting
the great Indian BPO wave. Jack Welch’s famous 70:70:70 rule–70 percent of
all GE processes could be outsourced, of that, 70 percent could be offshored,
and of that, 70 percent would be done in India–changed forever how the world
looked at India.

GE’s BPO operations in India come under GE Capital International Services (GECIS),
set up in 1997 to carry out back-office operations for GE Capital’s
businesses. Service offerings include ERP and Oracle database consulting, IT
help desks, knowledge services, software solutions, analytics, data mining and
modeling, e-learning and customer contact centers. GECIS is now headquartered in
India with operations in the Americas, Asia (Dalian, China) and Eastern Europe
(Hungary). In India, GECIS is still the largest offshore unit, employing close
to 12,000 people for delivering over 450 processes to 30 different business
units in the US, Europe, Japan and Australia. If GECIS brought the whole world
to India, it is now taking them to cities beyond the big three. Apart from
Gurgaon and Bangalore, GE has ventured into Hyderabad, Jaipur and also plans to
expand to Kolkata.

With intense global competition, GECIS is under pressure to justify its
cost-plus model. The 9/11 aftermath knocked the wind off GECIS as disaster
recovery became the buzzword and offshoring focused on alternate places like
Mexico, Hungary and China. A lot of work that would have come to India went to
these destinations. The company is now probably readying to position itself as a
third-party service provider. But for this, it has to develop its marketing
skills–something it did not have to bother about before.

2. Dell International Services

Despite being in the eye of a storm, Dell’s customer support center in
India is still one of the nerve centers for the company’s global operations
because of the company’s direct marketing business model. Customer support
centers play an important role in understanding the client’s needs and
customizing the product.

A late entrant captives, Dell, however, quickly ramped up to become the No. 2
captive process offshoring company in India in just two years. The Indian center
was set up in April 2001 in Whitefield, Bangalore to handle customer support
issues for its US home and small business customers. Today, it also handles
calls from Europe and Asia. This was Dell’s third customer service center in
the region after Penang in Malaysia (1995) and Xiamen in China (2001). The
Hyderabad center was set up in 2002. Today, the Bangalore center employs close
to 4200 people whereas the Hyderabad center has about 1200, according to bpOrbit
estimates. It is reportedly scouting for a third destination, Chandigarh being
the name floating around in the industry.

The company has denied recent reports that it was planning to take some work
back to the US. Instead, it claimed that it was on a growth spree. Despite
running the No. 2 captive operations, Dell has also been a prolific outsourcer
to third parties. At least three big BPO companies service Dell customers from
Delhi and Mumbai. For one of them, Wipro Spectramind, Dell is the biggest
customer.

3. e-Serve International

Started in 1998, e-Serve International has grown to be come the second
biggest captive offshore facility in India, next only to GE. This Citi Group
promoted company is also the only listed BPO company in India. The year 2002-03
was crucial for the company for two strategic decisions that could have
ramifications in the long run. On one hand, Citicorp Overseas Investment
Corporation, the principal shareholder in the company, hiked its stake to more
than 44 percent by purchasing nearly 6 percent of the company’s equity. But at
the same time, the company made public its intentions to shed off its Citi Group
captive status and look at external customers after a period of two years.
E-Serve provides services to Citi Group companies worldwide in the areas of
transaction processing, cash management, loans, mortgage processing, trade and
asset-based products among others. Becoming a non-captive fits in perfectly with
e-Serve’s aim to reduce its dependence on the parent–that in turn could help
Citi to become a significant player in the lucrative BPO sector, which explains
the hike in Citicorp’s stakes.

That e-Serve is heading in the right direction in the overall perspective
becomes clear from its spectacular performance in 2002-03–it clocked a 28
percent growth to touch Rs 258.39 crore, while profits grew by a whopping 137
percent to reach Rs 30.39 crore. Not surprisingly, it ramped up its numbers by
nearly 1,000 to touch the 4,500 barrier while a new bigger facility came up in
Chennai. Until the transition from a captive BPO to a third-party provider is
over, e-Serve will remain focused on the parent Citi Group.

4. American Express (India)

Contrary to popular belief, it was not GE but American Express (AmEx) that
first showed the world that offshoring of processes could be done effectively
from India, when it decided to try this unique model way back in 1993. That was
when economic reforms had just begun in India and telecom reforms were yet to
begin. It was a bold decision on the part of the then comptroller at American
Express, John McDonald, to choose India as one of the three locations where the
bank consolidated its operational centers, the other two being in developed
countries–Phoenix in America and Brighton in UK. While these two centers were
to serve the Americas and Europe respectively, India was to be the hub for
Japan, Asia Pacific and Australia. Interestingly, right from day one, it was
efficiency and quality and not cost that had driven this decision. AmEx also
leveraged on India’s technology strength to create a reconciliation platform
for all global operation. In effect, all the big ideas of today like offshoring
to India and combining the operational efficiency with the local technology
strength originated from this company. What is more, AmEx also gave Indian BPO
industry its most well-known manager–Raman Roy–who went on to set up two
more very successful offshore organizations.

The company employs 3,500 people and the global delivery center at Gurgaon
spans across an area of 137,000 sq ft. Starting with financial processing work,
it has added higher value work like fraud and risk modeling. And yes, even
customer service, keeping pace with the industry.

AmEx has been one of the staunchest believers in offshoring to India. Not
only has it successfully ramped its captive operations, it has also outsourced
telemarketing and customer service to a number of Indian BPO companies.

5. Scope International

Scope International, the back office operations of Standard Chartered Bank,
has been one of the newest, starting as late as in 2001, in the midst of the BPO
wave. Yet, its ramp up has been fairly fast, compared to many other banks that
came up earlier, like Citibank, American Express and HSBC. The company had close
to 3000 people in October 2003. The Chennai center is Standard Chartered’s
bigger of the two global shared service centers (GSSCs) in the region, the other
one being in Kuala Lumpur.

The initiative, which started with Standard Chartered’s global acquisition
of Grindlays Bank, which brought with it processing facilities in Chennai, today
boasts of a total workforce of about 3000. Broadly 65 percent of the manpower
are engaged in back-end processing operations of the core banking functions and
15 percent each are in technology support and back-end support like HR and
finance. In total, the company executes an estimated 600 processes, serving the
needs of more than 50 countries at a total space of more than 475,000 sq. ft.
Some of the major operations that Scope runs for its parent include payments,
trade, credit operations, global reconciliation, credit card and personal-loan
processing, investment services in the core banking area, IT help desks in
technology support, and finance and HR shared services among other support
functions.

The company is seriously looking at starting other processes such as
collections, credit analysis and customer call centers. It also plans do other
analytics functions. Like GE, Scope also plans to offer services to non-Standard
Chartered businesses.

6. HSBC Electronic Data Processing

HSBC is also one of the early entrants to India, setting up its BPO
operations in 1998, around the same time as GE. However, unlike many others,
India is not the only offshore destination for HSBC Electronic Data Processing,
which has facilities in three countries in the Asia Pacific region alone. The
company has three sites in India, two in China and one in Malaysia. In India,
the company has two facilities in Hyderabad and one in Bangalore. The company
had signed an MoU with the Government of Andhra Pradesh to set up a fourth
facility in Vizag but it has been moving slower than expected according to
sources.

Its success can be measured by the fact that it has bettered the quality
benchmark of its UK centers in terms of correct transactions. In October, the
bank announced that 4000 more jobs would move out of Britain. The majority of
that may come to India. According to sources, the India headcount will go up
from 2900 to 4000 in the next few months.

The company executes transaction processing, some wholesale banking and
HR-related functions out of its India facilities. The company is planning to add
higher value work like equity research and analysis, account receivables
management etc to its service portfolio.

7. Global eBusiness Operations

Global eBusiness Operations, a wholly-owned subsidiary of HP Europe, and the
company’s global accounting and order processing firm based in Bangalore,
stands out from most other captive units operating in India.

It is probably the only captive facility that is fairly focused and works in
a niche area, and yet has been able to ramp up quite fast. The company has
maintained a fairly low profile, though by size of its operations, it is equal
or bigger than many other captive BPOs who dominate the headlines. This is
despite its far higher transparency, as compared to many others. The India
facility is HP’s only global-accounting and transaction-processing hub. It
manages fixed assets, intra-corporate accounting as well as non-finance
operations such as logistics (freight-cost billing) and order processing. In
addition, the company also does some work in imaging and Web development.

It may be noted that most of the technical help desk and customer-interaction
services for HP is handled by third-party companies like vCustomer and its own
subsidiary Digital Globalsoft. For this, it recruits mostly commerce graduates
and chartered accountants. The company is also one of the first ones to start
recruiting people for servicing Spanish, French and German customers from
institutions like JNU.

Global Services has undertaken different quality initiatives, especially Six
Sigma to improve and optimize processes. HP is reported to have plans for adding
another facility in a second location, though more details about the plan are
not known yet.

According to media reports, it has already started a facility in Chennai that
may be used for back-office processes (for HP’s UK operations).

8. AOL Member Services India

AOL Member Services, the BPO arm of America Online (AOL) is betting big in
India. This is clearly evident from the recent spate of initiatives. According
to bpOrbit estimates, the total number of people as on 31 October 2003 was 1600.
It would double the number of inbound calls to 20 million by next year and offer
chat in addition to voice-based customer support care to its parent company from
the Bangalore center.

The company also plans a campaign to attract talent, adopt industry best
practice and enhance career opportunities for employees. Among other initiatives
to provide a growth path for employees, AOL plans to offer employees an
international experience by sending them to work in other call centers in the
US.

AOL Member Services India was set up in June last year with 200 employees to
offer telephony-based support to AOL’s 35 million subscribers worldwide. Based
in Whitefield, the facility handles about 10 million calls annually, averaging
22 calls per day. This comprises approximately 10 percent of the 110 million
calls generated every year by AOL members seeking support in multiple services
ranging from Internet usage, registration process for advertising products and
content including news, music and video.

This is AOL’s largest member service facility anywhere in the world. With
six member services facilities in the US and one in Manila, AOL is looking at
the Indian facility to deliver and grow. The center will undertake initiatives
for AOL global operations in the areas of product, content and Web development.

AOL India is working with other AOL groups on development of technologies to
fight spam and make the Internet safe for children and young adults. Although
the key line of operation will continue to be customer support, one of the goals
of AOL India is to broaden its portfolio to encompass other AOL businesses.

9. JP Morgan Chase

JP Morgan Chase is not only one of the top three in the
global pecking order of investment bankers, but at $800 billion, it is also one
of the top five asset managers globally. Therefore, it comes as no surprise that
its BPO arm in India would be one of the country’s largest captive units. The
Global Service Center (GSC) of JP Morgan Chase with an estimated 1400 people in
Mumbai, indeed, makes its way into the Top Ten list in bpOrbit’s captive
category.

The GSC, which is designed to provide value-added processing
services to the JP Morgan Chase business, is expected to grow in size over the
next few years by focusing on operational efficiencies. This is a logical
corollary to Wall Street’s strategic effort to lower costs in the face of weak
equities business and a stricter regulatory environment.

The GSC supports JP Morgan Chase’s technology and
operations, finance, corporate business services and other infrastructure groups
globally. There are primarily three different lines of business (LoBs)–shared
technology and operations (STO), investment banking operations (IB Ops) and
treasury and securities services; Chase financial services and global service
center finance.

The first LoB focuses on providing core banking technology
and operations services to all JP Morgan Chase businesses and clients. Financial
Services mainly caters to the crucial retail side, with the retail arm of JP
Morgan Chase being one of America’s top banks. Its credit cards division has
more than 30 million customer accounts and $50 billion in assets. It currently
operates in two sectors in Mumbai–the contact center and customer-account
management.

Global service center finance is an integral part of global
finance and has developed capabilities to handle both finance and business
information functions. The long-term goal for these offshore Indian operations
is to have higher productivity and lower overall costs.

However, all of JP Morgan Chase GSC functions in India are
restricted to transactional processing only. In sync with recent global trends,
GSC too has moved up the proverbial value chain as JP Morgan Chase has shifted a
part of its offshore equity research department to Mumbai, where Indian
professionals perform numbers crunching, prepare reports and, if things work out
according to plans, will soon track shares on the New York Stock Exchange and
the Nasdaq.

However, the current Indian manpower of 40 in this area do
not include any principal analysts, and they are primarily involved in the data
collection and valuation that goes into preparing an equity-research report. The
aim is to shift responsibility for tasks like data collection, basic financial
models and general number-crunching so that senior analysts can expand coverage
and get more time to meet clients face-to-face.

Both the transactional processing and research functions
outsourced to India are looked at as a rationalization of the cost of research
and the declining revenues of JP Morgan Chase since 9/11.

10. P&O Nedlloyd

The London-based P&O Nedlloyd is one of the three largest container
carriers in the world, providing services to about 120 countries worldwide. Its
India Shared Service Center (ISSC), the two BPO units, based in Pune and Chennai
with 960 people handle a host of front end and back end operations of the entire
global business. These units operate under the name P&O Nedlloyd IT Services
Pvt Ltd, set up as a 100 percent subsidiary of P&O Nedlloyd.

The Indian centers act as the back office for P&O Nedlloyd’s worldwide
business, covering a variety of shipping, documentation and finance-related
processes. The activities of the ISSC include data management,
accounting-support services, documentation and typical shipping operations like
vessel loading, vessel routing, freight forwarding among others. Even backend
processing work such as management information reporting has transferred to
India. The ISSC currently supports the West Asian, South Asian, North American
and European regions. There is another shared service center in Shenzhen, China,
which services the Hong Kong and North Asian operations of P&O. The ISSC
also provides services to support the P&O Nedlloyd’s data center in
London. The London data center provides the computing infrastructure to run its
global applications for its offices in Europe, America, Africa, South Asia and
West Asia. The setting up of the ISSC in India at an initial investment of
$500,000 was a step towards centralization of back office work. And the ROI
vindicates the rationale behind the P&O strategy–in the last 12 months,
the Indian BPO operations have reduced the global operation costs by nearly $300
million.

Looking forward, P&O plans to take more work from overseas to the ISSC
centers, because it allows the company to standardize more processes and achieve
efficiencies in cost and scale. Accordingly, the target for the ISSC is to
double its strength from 960 to 2,000 by end of 2004, with the additional
manpower armed with skillsets of shipping and logistics industry. In addition to
its BPO center, ISSC, P&O also has an 260-strong Indian-MASC (management
application support center) set up in Pune in partnership with Zensar
Technologies.