India looks within to combat BPO threats from abroad

In its annual economic survey, the Indian government highlights gains made by rivals China and the Philippines, and believes the local government and SMB sectors will pave new growth for its business process outsourcing market.

In its annual economic survey, released in the leadup to the country's Union Budget, the Indian government says rivals have emulated its "unique export-led success" to earn similar global recognition.

India's business process outsourcing (BPO) industry is expected to tip US$95.2 billion in the country's 2012 financial year, which ends March 31, 2013. However, in the last five years, the rest of the world has taken 10 percent of India's share of the global BPO market, according to the Union Budget & Economic Survey report, which cited figures from industry group Nasscom

This came amid a global slowdown, which is expected to peg industry growth back from 15 percent in 2011-2012, to an estimated 8.4 percent in 2012-2013.  China and the Philippines have led the attack.

"Although China faces challenges, such as language proficiency, the country is spending large amounts in mission mode to increase English proficiency, and thus may eventually emerge as a threat to India," the report said.

It added that while the Philippines , the second-largest destination for outsourcing, is currently facing the challenge of appreciating currency, it remains a serious competitor having developed both the hardware and software segments of IT.

The Indian government also felt threatened by the protectionist campaigns against outsourcing in western countries, such as the United Kingdom which homegrown BPO industry employs 800,000 British workers.

"The Indian BPO industry needs to gear up to address the challenges," the government wrote in the report. "Information campaigns to dispel the myths and fears about outsourcing need to be undertaken by the industry in the developed economies."

"To address the rising wages in the urban BPO space, there is a need to move more toward rural areas , for which skills development and English-language training with American and different European accents are necessary," the government said. 

In its financial year 2012, the IT industry--which includes services, BPO, engineering, R&D, and software products-- directly employed 2.9 million people, and indirectly employed 8.9 million. However, only 19 percent of IT revenues were contributed by domestic customers.

The Indian government believes technological updates within the local government and SMB (small and midsize business) customers could provide a new wave of growth for the BPO sector. It will encourage activities in these segments via the countrys' 12th Five Year Plan , last year's national policy on IT 2012, and the national e-government plan to digitize critical public services, and promote rural entrepreneurship .