Is the BPO Industry Recession Proof?
July 7, 2017
The BPO industry came about to resolve issues of increasing costs and shortages of skilled workers. The industry has grown in size and scope ever since. Most of the developing nations have benefitted from the huge dent in western economies in the past couple of years. There has been an increase in businesses being outsourced but there sure has been a reduction in profit margins. As callous it may sound the impact of the recession hitting the US and other major world economies have in some way, though not completely, positively impacted major outsourcing hubs like India and China. Let us see why?
The recession in the US economy has impacted all its business segments including banks, financial institutions, healthcare, manufacturing and the services industry. This has led to businesses taking desperate measures to control costs and increase their profits. There have been layoffs, pay cuts and recruitment freezes all over the US. Amidst the chaos and the panic, some companies have been looking for outsourcing alternatives that would help them sail through this difficult time. Another thing that needs attention is the US policy on outsourcing. It has become increasingly difficult for companies to justify huge layoffs. The new tax policy is not helping them either. Keeping this in mind, it has become difficult for companies to decide on outsourcing. But is cost reduction the only driver for companies in the US? Is lower pricing the only reason why companies would look at outsourcing their business processes to other countries? If that was the case countries like India and China would be celebrating their growth figures.
The fact is though businesses are looking for less expensive options, they are also looking at increasing their business efficiency & effectiveness. They are trying to reduce business risks and product development time by hiring specialized professionals. Some businesses have also explored and taken up the idea of M&A to prevent their ships from drowning. Others are looking for cheaper options within the US such as rural outsourcing or near shoring. Whatever may have been the impact of the recession on the US markets, the largest share of the outsourcing cake went to countries like India and China.
For instance, the Indian IT & BPO industry generates around $40 billion each year. The growth in the IT sector has been considerably slow in the past few years. There have been layoffs and recruitment freezes but they have been fewer than those in the US. The pay hikes have been moderate and promotions have been stalled. To make it worse there have been currency fluctuations affecting profit margins and competition from China and other fledgling BPO hubs has pushed companies to rework their pricing.
The Indian companies have gone into the cost saving mode. But in spite of all these problems, Indian BPO companies have been able to sustain themselves. The Indian markets though volatile have been on an upswing since the end of last year and the Indian economy is still growing at the rate of 7.5% to 8%. BPO companies in India have also started capitalising on the domestic companies wanting to outsource, to cover up for losses from their western clients. They have also started shifting their businesses to Tier II cities hoping to reduce their working costs. They are finding ways to reduce their dependency on the US by doing so. The other challenge that major BPO hubs may have to counter is the increasing inclination of businesses towards freelance providers within their country. With layoffs happening in most companies in the US and the UK, the freelance economy has gained momentum. Most skilled and unemployed workers turned to freelance work during this economic meltdown. The availability of skilled IT professionals in the UK, offering freelance services is also on the rise.
So is the outsourcing industry recession proof? The Wall Street Journal in 2009 reported that the Indian entity HCL Technologies Ltd. topped the list of outsourcers in 2009 and nearly 94% of companies surveyed said they would definitely consider India as an outsourcing destination for the right price, second only to the U.S. market. The outsourcing industry is not a stand-alone entity that it would be unaffected by the changes in the world economy. But one thing is for sure, the industry has learnt to roll with the punches and survive.