Increased protectionism issues, proposed offshoring bans, visa fee hikes and a saturated market—this is the present scenario in the United States. The region might boast of a significant 60% business for Indian players, but these BPO vendors are getting smarter and do not want to keep all their eggs in one basket. Attractive margins, vastly untapped regions, coupled with an urge by European companies to cut costs through outsourcing is compelling BPO providers like EXL Service, Infosys BPO, Genpact, Intelenet Global Services,WNS Global Services to increase their share in this market.
Today, Indian vendors have captured 37% share in the $10-12 billion European BPO market. In spite the European crisis last year, these providers maintained 30% revenues from the market (including UK, the second largest market) and did not decrease their concentration in Europe. The $12.4-billion ITeS industry might rejoice at the US Senate’s recent decision to block the passage of an anti-offshoring bill, but deep within they want to mitigate risk. They are further concentrating on enhancing delivery capability and increasing headcount by opening new centres in Europe.
Take for instance EXL Service, the country’s third largest pure play BPO which gets 75% revenue from the US, but is focusing to expand its footprint in the European market. Europe gives the company 25% of its revenue and a major 22% comes from the UK. Rohit Kapoor, CEO at EXL Service says, “I vision a split of 70% from the US and the rest 30% from Europe within a year. Right now, we have very little business from continental Europe. The segments we will focus on are insurance, utilities and banking process and we will continue to hire people in continental Europe.”
Large insurance carriers, including British Gas, being EXL’s primary clients, European crisis is not a major concern for the company. In the long term, EXL Service has targeted its revenues to reach 10% from Europe, except for the UK, in the next two years as against 3% at present.
Infosys BPO MD and CEO Dandapani Swaminanatan believes that Europe is a very important and key area for the BPO. “Our investment should get doubled in Poland in next 18 months from $10 million presently.
Also, we should hire another 550 people in 12 months in Poland, which are presently 950 there.” On the Ohio issue and the US visa fee hikes, he notes that a short term impact in one region will have a balance from another region as counterbalance and thus Infosys BPO is also looking at potential geographies like Europe. “We are looking at expanding not only in Poland and Czech Republic, but in and around Europe. Today, there is a lot of interest from the European companies.” Presently, Infosys as a whole has 20% share from the European market, which is expected to increase significantly in long term.
Genpact, the country’s largest BPO with 2,500 employees in Europe gets 10-12% revenues from European market. Ahmed Mazhari, vice-president for business development at Genpact Europe says, “Germany and France are untapped markets and there is huge business opportunity here.” But Ahmad feels that Genpact eyes Europe very strongly as a delivery capability centre which would also serve a lot of American companies that have a significant base in the European continent. In March, Genpact announced it would expand its presence in Romania by acquiring a new facility in the Transylvanian city of Cluj-Napoca. The company expects to create several hundred new jobs in Romania, being one of the most active local employers in 2010.
The competitive edge
Interestingly, there are a few examples of players like WNS Global Services and Intelenet Global Services, which have been strong in the European market for a while now and might give an competitive edge to the service providers now expanding in the region.
A classic example is WNS Global Services, which gets 60% of its revenue from the European market and has increased its headcount in the European market to 800 recently. “Our centre in Romania offers services in excess of 25 languages to our European clients. The headcount in Europe region has increased by almost three times in the FY 09-10 since FY 07-08,” says Keshav Murugesh, CEO, WNS. On the entry of new vendors into the region, he believes that it is good to have competition as it expands the market. “We are focused on building the pipeline in every verticals like insurance, banking and financial services and primarily the government sector, which is an exciting area for Indian BPOs.”
Ross Tisnovsky, vice-president, research, Everest Group, a global management consulting notes that Europe is a tougher market for Indian companies as it will automatically require more onshore presence as compared to the US. Having onshore resources means having onshore employees and it is hard to compete. Murugesh elaborates: “In the medium and long term, the public sector will drive more onsite presence in centres such as Manchester, London and Romania. We are looking at how do we expand the Romania centre. We are winning a lot of deals in Europe which need a lot of on site and nearshore offerings.”
Even Intelenet Global Services gets 50% revenue from UK and Europe combined; UK is the largest market for it. To expand its presence in Europe, the company announced a new centre in Febraury, located in the Southern part of Poland this year. This will enhance the company’s near shore capabilities in Europe. Intelenet plans to grow the facility to 500 seats in around a year, which is presently 200. Sandeep Aggarwal, executive vice-president, (sales, solutions and transition), Intelenet Global Services, believes that geographical spread, language capability and disaster recovery are the main reasons why BPO vendors are looking at expansion in the European market. Pankaj Sharma, from CFTI( Centre of transforming India) agrees and highlights, “ US being a mature market, Indian providers are not able to provide integrated and end-to-end services to US buyers. In some cases, the European regions might provide 10 to 15% higher margins to us as European companies are willing to pay more.”
It is obvious that over-dependence on the US is high-risk for the Indian BPO industry. “This risk can be mitigated by targeting other markets. Europe, the most prominent market apart from US, with 63% of all developed countries in the continent, the market still in its nascent phase and increasing trend of offshoring—there is immense opportunity for vendors to tap this market,” concludes Saugata Sengupta , senior analyst at Tholons Investment Advisory.