Outsourcing As a Driver of Economic Growth

By Frank-Jürgen Richter

September 20, 2022

India’s business process outsourcing (BPO) sector under the ITES (Information Technology Enabled Services) has been growing at an unprecedented rate. The industry is expected to reach US$225-250 billion by 2025, growing at a CAGR of 8%.

Factors such as India’s favorable and liberalized policy framework in regards to the IT outsourcing market; coupled with lower cost of services comparably to developed countries; and the pool of highly skilled and educated workforce, made India the outsourcing services hub of the world.

India boasts of over 250 million school-going students, which is more than any other country. The country had 42,343 colleges by the end of 2020; while its universities count stood at 1,047 as of June 2022. India has also become the second largest market for e-Learning after the US.

These factors and the first-mover advantage has made India the leader of the global outsourcing market. But can the same be achieved by emerging Asian countries such as Vietnam? 

This is one of the topics being discussed in the upcoming Horasis India Meeting, being held between 25 to 26 September, 2022 in Vietnam. The themes being discussed in the meeting will center around geopolitics, impacts of COVID-19, and the pressures being faced by global and national economies. The event will have 300 of the most senior members of Horasis, suggesting ways in which developing economies—particularly India and Vietnam—can realize a sustainable and resilient future.

Spreading Out

COVID-19 has made a sea change in the way business is conducted in the BPO sector. The sector is now dabbling with the idea of setting up shops in Tier II and Tier III cities across India. The idea being that if individuals sitting in Tier I cities in India can service clients sitting in the US or UK, the same can be achieved from a person sitting in smaller towns in India. What will be required is a laptop, a reliable power supply and an uninterrupted internet connect.

Aegis BPO already has some 3,000 employees who work from small towns, and the company has plans to increase this to about 20% to 30% of its total workforce. Genpact, a global professional services firm is also following suit, looking to recruit and set bases in smaller towns across India.

This shift to smaller towns will be a win-win situation for the BPO sector and the talent pool, and will benefit the socioeconomic situation of these small areas. Most of the talent pool that makes up the BPO workforce are from small towns. So, going to the source, will certainly enable BPO companies to hire a better and competitive workforce. Also, setting up bases in smaller towns will lead to reduced office costs which in Tier I cities comprise the lions share in total operating costs.

Additionally, once the BPO sector gets moving in smaller towns, it will also uplift the socioeconomic condition of the area, with more focus put by the government in developing the area. New roads will be built, along with enhancement of power supply and upliftment of water and sanitation systems. Local businesses will also benefit with the influx of technology and infrastructure. It will also boost ancillary sectors such as housing, food and the transport sectors.

It’s Applicability to Other Countries

Other than the cost factor, Indian BPO companies are losing about 70% of all incremental voice and call center business to competitors like the Philippines and Eastern European countries. An ASSOCHAM-KPMG study in 2014 had mentioned that, “employees in Philippines call centers speak English fluently with a neutral accent which is what customers look for and that is something missing in Indian accents. This is a prime reason for the BPO business thriving in that country.” The industry body further added that, “cultural proximity to the US and availability of talented manpower are key reasons why BPO companies prefer expanding operations in Philippines.”

Vietnam can also find success in the BPO sector. The country is already registering a positive GDP growth in 2022. The World Bank estimates Vietnam’s economy to grow to 7.5% in 2022 from an estimated 2.6% in 2021. That’s a solid growth considering how fast the country was able to rebound from the impacts of the pandemic.

BPO is considered to be one of the five sectors with the greatest potential for growth and investment in Vietnam. A stable government committed to economic growth, coupled with young and abundant workforce, point to favorable grounds for growth of the sector.

Some challenges for the country exist in terms of lack of soft skills in communication and English-speaking. In addition to this the basic BPO services face tough competition from chatbots and automated applications being run using AI and machine learning. BPO providers will need to focus on developing mid- and high-end services that use technology for further advancement in these services.

Photo Caption: BPO is considered to be one of the five sectors with the greatest potential for growth and investment in Vietnam.