Trounced by India, What is the Way Forward for American BPO Providers?

US Business Process Outsourcing (BPO) companies do not have a strong presence in the Americas, where players from India have stepped up to meet the challenge and grab …

Deborah Kops of Sourcing Change says hybrid strategies are the need of the hour.

US Business Process Outsourcing (BPO) companies do not have a strong presence in the Americas, where players from India have stepped up to meet the challenge and grab market share. That trend is set to continue, with Indian providers growing stronger and US players focussing on niche areas closer to home.

“We saw India make a splash around 1996-1998, and then really take off in the 2000s,” says Deborah Kops, an independent consultant at Sourcing Change. “Back in the 90s we didn’t even talk about India; it would have been more common to have a conversation about Rotterdam, which was then considered to be an inexpensive, well-managed location.”

Kops sees some interesting opportunity for US-based providers, though this is mostly in offering new value in an onshore or reshore model, as opposed to setting up shop in Latin America or the Caribbean – areas that have been heavily invested in by Indian BPO giants like TCS and Cognizant. “The opportunity is there for US providers that push different models,” she says. “An example might be an open-source onshore model that is a hybrid between outsourcing and captive.”

However, this delivery model would be approached in a point-by-point, case-by-case manner, and differs from the more straightforward approach of using onshoring to stay close to customers, perhaps by purchasing a captive provider.

“Right now US BPO providers are not leveraging newer hybrid strategies, but there may be some soon,” she says. “I know of two companies that are looking at a hybrid model, with shared services onshore. They are trying to work it out – going out and requesting solutions.”

These are farsighted organizations, and hardly the norm. But they are examples of US-based BPOs that are challenging the big offshore providers with value-based offerings that are closer to home.

“I am seeing far more creativity, with shared services guys who have set up captives to embrace new models that harness the promise of outsourcing, but aren’t necessarily located far away,” says Kops. “Their clients can then be more confident in any new approaches.”

Finding the Value

Given that American BPO providers are not about to build out massive offshore capabilities, it makes sense for them to argue for value propositions within unique hybrid models that allow for smaller, higher-value operations onshore. “When it comes to finance and accounting, offshore providers have had a hard time moving up the value chain,” says Kops. “In the eyes of a client, that might be a step too far for a third party provider, which augers well for onshore.”

And when it comes to high-value processing, there is still concern within financial services with regard to the retention of human capital. Higher-end processing can involve valuable and sensitive information that is best kept close to home.

“There is also the fact that some US companies are now developing social corporate responsibility policies, particularly those that have prioritized investment in the US,” says Kops. “One example is returning veterans. They might be disadvantaged at present, but there could be value in training them to do some of this work – I expect to see more movement in this direction.”

Kops notes that people with previous work experience, and who have travelled abroad, can bring more to the table than a person fresh out of university, or from a distant land.

“We will see US companies that want to keep things onshore in order to maintain cultural and contextual knowledge,” she says. “The question then becomes: how does a US BPO provider harness what they know?”

Scaling the Advantage

But even with an approach that leverages home-grown talent, it can be difficult for US providers to challenge the larger offshore providers, for the simple reason that these big players have now been at this for some time, and have significant capabilities.

“There are things you have to deal with onshore that you just don’t have to deal with offshore,” says Kops. “There is much more interchangeability offshore. In India a center might scale to 3,000 or 5,000 people. You aren’t going to hire 5,000 people in Jonesboro, Arkansas, to do BPO work.

That said, there are captive operations in the United States that have 300 seats, which allows for some flexibility as well as more depth of training and talent. And there are examples of small financial services firms that have done their own BPO.

“Smaller UK-based companies in finance and accounting like Capiota started at home and then drove their development teams with their own offshore strategy,” Kops says. “But that won’t appeal to everyone, because Indian providers have been able to package offerings that take away a lot of the variability.”

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Which is to say, the Indian outsourcers with a global reach are increasingly hard to beat. In fact, recent data from Nasscom, the Indian information-technology-services trade group, expects the industry to grow 10.2% in fiscal 2014 and then 13%-15% in 2015.

And this growth isn’t due to specific back-office demand in sensitive areas like finance. Instead, it comes from the continued explosion in mobility and e-commerce. That, combined with looser purse strings, will drive revenue to Indian outsourcers, which in turn will allow them to re-invest in building and deepening their capabilities.

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