Ambitious plans to put India's business process outsourcing industry firmly on the map were on the agenda at a key meeting in Bangalore last month. Andrew Rigby reports

At last month's National Association of Software and Services Companies (NASSCOM) Business Process Outsourcing (BPO) Strategy Summit in Bangalore a step-change was discovered in India's future technology and outsourcing business model which will impact countries around the globe. The Indian IT and BPO industry plans to become a global business, bundling services across onshore, offshore and near-shore delivery models.

This bold move comes despite the current economic turmoil, which also is having an effect on Indian outsourcing and technology businesses (particularly the latter). Nevertheless NASSCOM predicts that BPO business will grow world between 6% and 8% over the coming year.

Indeed, according to NASSCOM's own figures, the global BPO sector has already grown from $430bn (£263bn) in 2008 to $500bn (£306bn) at present, and is likely to continue to grow as businesses seek ways to reduce costs and, importantly, increase efficiency and quality.

India recognises that the recession is changing the way the world thinks. It has already experienced elements of protectionism (some at grass roots levels – Mahindra in the UK and TCS in the US), and others such as British Jobs for British Workers and Obama's views on tax and outsourcing – celebrated in the iconic phrase, 'Yes to Buffalo, no to Bangalore'.

From offshore to onshore

To implement this new delivery model, NASSCOM, together with McKinsey, has developed a vision for 2020 tagged: 'Transform Business, Transform India'.

In essence, Indian BPO suppliers appreciate that in a time of recession when businesses around the globe are going through great changes, longer term strategy will be about getting closer to the client, addressing new markets and understanding local cultural issues. In other words, Indian BPOs will become global players, but with local delivery.

According to McKinsey and NASSCOM, the addressable market for global sourcing will increase from $500bn (£302m) today to between $1.5trn (£914bn) and $1.6trn (£975bn) in the next decade. It is predicted that by 2020, the split between offshore and onshore activity will be in the region of 20% onshore and 80% in India. As lawyers, we are likely to see a rise in activity as a result of this step-change.

Already, Indian suppliers are moving away from the offshore delivery of front-end, customer facing voice services (contact, call and support centres). They understand that many of these services need to be provided onshore or near-shore and that cultural issues play a large part in customer service. The Philippines is steadily developing a voice capability, particularly into the US, because of language and shared American culture.

Cash-rich and ready to invest

Indian business leaders also predict that the BRIC countries may account for up to 25% of growth by 2020, and the increasing middle classes in India will lead to greater demand for domestic outsourcing services (up to $100bn (£61bn)). Interestingly, Indian BPOs still face difficulties penetrating Western Europe, which they see as a relatively untapped market.

Key to their strategy, therefore, will be measures to increase market presence in this region, partly through offering onshore and near-shore supply centres. Many of the Indian vendors in Bangalore are cash-rich and looking for acquisitions of, or JVs with, existing UK and Western suppliers (they might also purchase captive processing centres from banks). Many will also consider setting up centres in the UK, if led by customer demand.

Many of the large Indian suppliers are now moving into a large sphere of sectors, including oil and gas, financial services, insurance, pharmaceuticals, design, creative industries and tourism.

New growth markets such as defence and public sector, media, utilities (and energy) and healthcare have also been identified by Indian BPOs. Among these, legal process outsourcing (LPO) is gathering pace, with many of the larger Indian law firms setting up their own captive LPO businesses.

As a result of all of this potential growth, NASSCOM predicts that by 2020 India will have up to 15 tier II cities providing world class BPO services – with a talent pool of more than 13 million people, it is not difficult to imagine them achieving this. Clearly, the Indian powerhouse will continue growing, and their aim is to be among the top three innovation hubs in the world.

Opportunities

Given potential budget constraints in central and local government here in the UK, I believe that there are real opportunities to make savings in government by outsourcing IT and BPO and asking offshore suppliers to set up onshore locations to service government. Outsourcing is no longer a case of losing jobs.

The government can play a role in demonstrating that outsourcing is not necessarily a bad thing. Research shows that outsourcing does not (after a period of adjustment) mean mass unemployment – during the period of relentless offshoring from 2000 to 2007, employment actually rose in onshore economies. It should also be recognised that outsourcing makes a net contribution to a country's wealth – OECD research has shown that the US economy has grown by $230bn (£140bn) as a result of outsourcing.

There are, even in the face of this potential huge growth and market penetration by Indian suppliers, great opportunities for BPO suppliers in the UK that anticipate the development of this strategy or join forces with Indian companies to roll out this global vision. For lawyers, equally, there are significant opportunities to advise both Indian and UK companies that wish to participate in India's global IT and outsourcing ambitions.

Andrew Rigby is head of outsourcing at Brodies.