Outsourcing Firms: Consolidation in India

A recent study by Gartner, an IT research and advisory firm predicts that more and more business process outsourcing (BPO) service providers in India will cease their operations because of the economic meltdown. At least 25% of the top service providers will find it difficult to sustain themselves and will not be an independent business by 2012.

The financial services sector, like those with substantial amounts of revenue from banking sectors, is first to be hit by the meltdown as this sector makes up almost one-third of the total BPO market, worldwide.

Gartner believes that buyers should be prepared. They should build exit strategies into contracts and have backup plans in the event of contracts; this has been the rising trend since 2007.

The entire scenario of business process outsourcing will change with market exits, acquisitions and the arrival of new vendors in the coming years. The economic crisis, unprofitable contracts and the inability to adapt to standardized delivery models will make it very difficult for most service providers to continue in their existing avatar. Where some outsourcing firms will be acquired, others will exit the market completely. Firms with new business models who will deliver business processing services as automated, utility services will take over.

Gartner is of the view that buyers’ vendor selection teams should study the prospective providers’ business deals or models to fully understand how they make their profits. It would be in their interests to become familiar with the vendor’s winning model of acquiring new businesses.

Source: The Economic Times, 30th September, 2009

FYI…