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Home > Business > PTI > Report

Gartner doubts viability of Indian BPOs

April 19, 2004 13:20 IST

The recent acquisition of Daksh eServices by IBM raises serious questions about the viability of Indian-owned business process outsourcing providers, according to analyst firm Gartner.

Daksh is one of the best-managed Indian BPO service providers and its acquisition will reinforce the view that managing such rapid growth is proving to be a big challenge for many "local" Indian entrepreneurs. Many MNCs are making major moves into offshore outsourcing and this raises serious questions about how many "pure-play" Indian providers can survive their pressure, Gartner said.

The explosive growth in the Indian offshore BPO industry in the past two years has begun to expose some newer Indian outsourcers' fundamental weaknesses in managing this growth and particularly the demands of a rapidly-expanding workforce, Gartner analyst Sujoy Chohan said.

Established information technology service providers like Infosys, Wipro, TCS and HCL Technologies have been able to develop their skills in these areas over many years. For the new players, human resources issues like attrition and security are emerging as serious management challenges, he said.

The result is that management resources are strained and many entrepreneurs are tempted to cash out while the market will still pay premium prices for their companies, he said.

On the deal, he said it is a step further in IBM's ongoing efforts to strengthen its India delivery capabilities. Daksh will certainly increase IBM's capabilities in the offshore contact centre market.

Daksh's 80 per cent revenue comes from voice and web support.

Gartner said Daksh focusses on e-commerce -- its first client was Amazon -- and the retail, consumer electronics and telecom verticals. The company recently signed a major technical support deal with HP.

It is not clear whether Daksh's acquisition by IBM will cause HP to withdraw from this deal.

Even if it does, the acquisition's value to IBM will not be diminished, it said.

Gartner has recommended that enterprises considering pure-play offshore BPO providers must recognise that offshore outsourcing requires a long-term commitment from both parties involved. As the offshore BPO market accelerates and consolidates, size and management experience will become critical decision factors.

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