Gen AI may start hitting India's BPO sector as clients look to automate processes

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The rise of generative artificial intelligence (Gen AI) has pushed revenue growth at the business process outsourcing (BPO) units of Infosys and Tech Mahindra to its slowest in at least six years, analysts said.

The rise of generative artificial intelligence (Gen AI) has pushed revenue growth at the business process outsourcing (BPO) units of Infosys and Tech Mahindra to its slowest in at least six years, analysts said.

In November 2022, Chat GPT, a Gen AI tool that can be used for content creation, launched discussions of Gen AI in corporate boardrooms around the world. Companies across industries are now turning to the disruptive innovation of this technology to create content in written, audio, and visual formats to replace routine human tasks.

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In November 2022, Chat GPT, a Gen AI tool that can be used for content creation, launched discussions of Gen AI in corporate boardrooms around the world. Companies across industries are now turning to the disruptive innovation of this technology to create content in written, audio, and visual formats to replace routine human tasks.

“BPO is experiencing an overall slowdown as contracts are being renegotiated and companies are looking to automate BPO operations,” said Ray Wang, CEO and founder of Constellation Research.

Two months ago, K. Kritivasan, CEO of Tata Consultancy Services, India's largest information technology services company, said: Financial Times Gen AI will be able to complete the BPO business almost completely.

Pune-based Tech Mahindra's BPO division Revenues for FY24 were Rs 7,712 crore ($930 million), about 15% of total revenues of $6.28 billion. Revenue growth was 7.12%, the slowest since FY2018 after two consecutive years of growth of over 30%.

Infosys' BPO division also did not fare well. Infosys BPM revenues were $953 million as of March 2024, a 2% growth rate and the lowest in seven years. Infosys and Tech Mahindra are the only companies to disclose revenues for their BPO businesses.

“My sense is that BPO business is shifting towards self-service channels that require less human intervention, conversational AI and automated or digitised systems, which could be the reason for the slowdown in demand for BPO business from IT services companies,” said Kshitij Saraf, equity associate at Task Investments.

Uncertainty is a hindrance

A third analyst said slow growth in BPO services was due to the difficulty of expanding an already large business.

“As this successful business scales, it becomes harder to grow rapidly on a larger base,” said Peter Bendall Samuel, chief executive of Everest Group, a US consultancy that advises clients on outsourcing. “The customer experience market, where TechM does most of its work, faces significant uncertainty due to the possibilities that Gen AI offers. Once these issues are resolved, we expect the sector to regain momentum. But for now, uncertainty is a drag on growth.”

In Tech Mahindra's case, another analyst said the slowdown in the BPO division was due to lower demand in its core telecom business.

“We believe the slowdown in BPO growth is due to weakening demand from the telecommunications industry, a key vertical for TechM, exacerbated by the protracted leadership transition from CP Gurnani to Mohit Joshi last year,” said Phil Farsht, CEO of US outsourcing research firm HfS Research.

Tech Mahindra earned about 36% of its revenue through its communications, media and entertainment business. Joshi took over as CEO in December 2023, succeeding Gurnani, who had been in the top position for 14 years.

A Tech Mahindra spokesman said the company is looking beyond business process services for growth.

“Currently, our focus is on diversifying our business, acquiring new clients in high-margin industries and providing value-added services beyond traditional BPS services. We are also working on upskilling our employees to manage specialised tasks,” Virendra Sen, head of business process services at Tech Mahindra, said in an emailed response. mintQuery.

But revenue growth was stronger for pure BPO companies ExlService Holdings Inc and WNS (Holdings) Ltd. EXL reported a 15.5% rise in revenue to $1.63 billion for the year to Dec. 31, 2023. WNS said its revenue rose 8.1% to $1.3 billion for the year to March 2024.

“This pure play is in a popular sector, and its focus on this high-growth niche, combined with its small size, has enabled it to outperform the industry average,” Samuel said.

Constellation Research's Wang attributes the growth of pure BPO companies to the accelerating adoption of AI.

“Pure BPOs have a competitive advantage because they are delivering more automation and AI at a faster pace,” Wang said.BPO was one of Tech Mahindra's key focus areas when it was known as Mahindra British Telecom. With a growing customer base and capabilities, the company changed its name to Tech Mahindra on February 3, 2006. The IT services company started disclosing its BPO revenue share as part of its total revenue from the year ended March 2007.

Infosys' BPO business started as Progeon Ltd in 2002. It was renamed Infosys BPO Ltd in 2006 and Infosys BPM Ltd in 2017. The Bengaluru-based IT services company's BPO division had 57,694 employees as of March 2024, accounting for 18.2% of Infosys' total workforce.

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