In July 2005, Mahindra British Telecom (MBT), one of the top 10 Indian IT services companies, announced its foray into BPO services. MBT’s decision to add BPO to its portfolio just removes the sole exception to the rule that existed. In India, the land of offshoring, all the other big-and not so big-IT companies have ventured into the “lucrative” BPO business, and are not doing badly.

Today, BPO seems such a natural thing to do for IT companies that it sounds unbelievable that just about four years back, in 2001, many of them were not so convinced about it, to put it mildly. One of the most well known industry spokesperson had even termed it a “short-term” opportunity that IT companies were being forced to look at because of the slowdown in IT.

On the face of it that did not sound too absurd.

After all, the Indian IT industry was seeing one of the sharpest falls in its growth rates-from close to 50 per cent in 2000-01 to less than 25 per cent that was showing all signs of further downward movement. Since then, it has bounced back to a healthy 30 per cent in 2004-05, but not before touching a nadir of about 18 per cent in 2001-02.

But the love for BPO seems no sign of fading away. Almost all Indian IT companies have ventured into it.

It is not surprising that BPO has become such a craze. According to NASSCOM, India’s IT industry body, that also doubles up as a platform for the local BPO industry, India’s BPO exports have grown from $1.44 billion in 2000-01 to $5.2 billion in 2004-05. That is a CAGR of 50 per cent-almost double the 26 per cent CAGR for IT services. A better indicator is the overall contribution of BPO to India’s outsourcing export. From just about 19 per cent in 2000-01, the figure is likely to go up to 32 per cent by the end of the current financial year, 2005-06.

Indian IT companies-who championed the offshoring model-see it as the natural extension to their capability. While some IT companies like HCL and MphasiS have embraced it with both hands, right from the early days, a few others like Wipro compensated for the lost time by using the inorganic route. Infosys and Satyam started a little late and are trying to catch up. Infosys’ BPO subsidiary, Progeon, has now stormed into the top bracket. TCS, that made some small acquisitions to enter the area, is lagging behind. For Wipro, and HCL, BPO revenue contributes significantly to the topline.

Despite such activity in what the world calls BPO, India kept calling it IT Enabled Services (ITES) in its initial years. Though opinion about the origin of the phrase varies, many say it was coined to club it with the IT industry so that it could get the governmental incentives-both financial and others-till that time available only to the IT industry.

Not many in the BPO industry have been comfortable with the fact though. Way back in 2002, in reply to a question by Global Outsourcing’s sister publication, Voice & Data, on what he feels about BPO being hyphenated with IT, Pramod Bhasin, CEO of Gecis, India’s biggest pure play BPO company, had remarked, “It needs to be divorced from that. I think it should be called business process outsourcing or something different to get that clarity. The comparisons are there. But I think it is a very different industry. It is best not to confuse, because the skill sets that you need to run these two businesses are also very different.”

NASSCOM, one of the most dynamic industry association in India, has recognized that reality. Today, it calls the industry ITES-BPO, instead of simply ITES.

In any emerging opportunity, there is always a debate on what is called “end-to-end” versus “best-of-breed”. We have seen it in Internet, software, dotcom, telecom, and almost every fast growing new industry. This industry is no exception.

The “established” IT players-in the US, Europe and India-have argued that the future of outsourcing lies in an integrated delivery of IT and BPO services. The small breed of pure-play BPO companies, have shunned this logic.

But so far, the ground realities had favored the former. Most of the big names in outsourcing today are integrated players like IBM, Accenture, EDS, CSC, ACS, Infosys, and Wipro. Even in India, where BPO started as a separate industry, the IT industry was quick to realize the opportunity and made some smart moves. Two of the biggest companies of that time, Spectramind and Daksh which started as VC funded companies by professionals were gobbled up by two of the biggest names in IT-Wipro and IBM, respectively. That almost decided who won the battle for supremacy in the BPO domain.

But at the end, it was only a battle. The war was far from over.

There was one peculiarity to the growth of Indian BPO. Strictly speaking, it was not fully BPO. A large percentage of the business services that was being offshored to India was coming as captive offshoring-a company was setting up its own operations to take advantage of labor arbitrage. Registered as Indian companies, they were separate legal entities, to which the parent companies outsourced, often following the same kind of metrics and SLAs that they would do with an external party. These entities grew without having to bother about capital, often becoming a little-but not too-inefficient as compared to the independent companies.