Chapter – 3

MACRO-MICRO ECONOMIC ANALYSIS

3.1 INTRODUCTION:

The difference between micro and macro economics is simple. Microeconomics is the study of
economics at an individual, group or company level. Macroeconomics, on the other hand, is the
study of a national economy as a whole.

Microeconomics focuses on issues that affect individuals and companies. This could mean
studying the supply and demand for a specific product, the production that an individual or
business is capable of, or the effects of regulations on a business.

Macroeconomics focuses on issues that affect the economy as a whole. Some of the most
common focuses of macroeconomics include unemployment rates, the gross domestic product of
an economy, and the effects of exports and imports.

The term Business Process Outsourcing or BPO as it is popularly known, refers to outsourcing in
all fields. A BPO service provider usually administers and manages a particular business process
for another company. BPOs either use new technology or apply an existing technology in a new
way to improve a particular business process. India is currently the number one destination for
business process outsourcing, as most companies in the US and UK outsource IT-related
business processes to Indian service providers.

3.2 MICRO:

The BPO Industry in India

In India, Business Process Outsourcing (BPO) is the fastest growing segment of the ITES
(Information Technology Enabled Services) industry. Factors such as economy of scale, business
risk mitigation, cost advantage, utilization improvement and superior competency have all lead
to the growth of the Indian BPO industry. Business process outsourcing in India, which started
around the mid-90s, has now grown by leaps and bounds.

India is now the world's favored market for BPO companies, among other competitors, such as,
Australia, China, Philippines and Ireland. The BPO boom in India is credited to cheap labor costs
and India's huge talent pool of skilled, English-speaking professionals. Research by the National
Association of Software Services and Companies (NASSCOM) has revealed that quality
orientation among leading BPO companies, 24/7 services, India's unique geographic location and
the investor friendly tax structure in India have all made the BPO industry in India very popular.

Services offered by Indian BPO companies

Indian BPO companies offer varied services, such as,

 Customer support
 Technical support
 Telemarketing
 Insurance processing
 Data processing
 Forms processing
 Bookkeeping
 Internet / online / web research.

1. Customer support services: 24/7 inbound / outbound call center services that address
customer queries and concerns through phone, email and live chat.
2. Technical support services: Installation, product support, running support,
troubleshooting, usage support and problem resolution for computer software, hardware,
peripherals and internet infrastructure.
3. Telemarketing services: Interacting with potential customers and creating interest for the
customer's services/ products. Up-selling, promoting and cross selling to existing
customers and completing online sales processes.
 4. IT help desk services: Level 1 and 2 multi-channel support, system problem resolutions,
technical problem resolution, office productivity tools support, answering product usage
queries and performing remote diagnostics.
5. Insurance processing: New business acquisition and promotion, claims processing, policy
maintenance and policy management.
6. Data entry and data processing: Data entry from paper, books, images, e-books, yellow
pages, web sites, business cards, printed documents, software applications, receipts, bills,
catalogs and mailing lists.
7. Data conversion services: Data conversion for databases, word processors, spreadsheets
and software applications. Data conversion of raw data into PDF, HTML, Word or
Acrobat formats.
8. Bookkeeping and accounting services: Maintenance of the customer's general ledger,
accounts receivables, accounts payables, financial statements, bank reconciliations and
assets / equipment ledgers.
9. Form processing services: Online form processing, payroll processing, medical billing,
insurance claim forms processing and medical forms processing.
10. Online research: Internet search, product research, market research, surveys, analysis,
web research and mailing list research.

Interesting facts about the Indian BPO industry

 The BPO sector in India is estimated to have reached a 54 per cent growth in revenue
 The demand for Indian BPO services has been growing at an annual growth rate of 50%
 The BPO industry in India has provided jobs for over 74,400 Indians. This number is
continuing to grow on a yearly basis. The Indian BPO sector is soon to employ over 1.1
million Indians
 70% of India's BPO industry's revenue is from contact centers, 20% from data entry work
and the remaining 10% from information technology related work
 Indian BPOs handle 56% of the world's business process outsourcing
The Top fifteen BPO companies in India

NASSCOM recently conducted a survey and evaluated the leading BPO service providers across
India. The top fifteen business process outsourcing companies in India are:

 WNS Group
 Wipro Spectramind
 Daksh e-Services
 Convergys
 HCL Technologiess
 Zenta
 First Source
 Mphasis
 EXL
 Tracmail
 GTL Ltd
 vCustomer
 HTMT
 24/7 Customer
 Sutherland Technologies

Outsourcing BPO work to India

Get ahead of your competitors, cut down on operational costs and get access to the
services of skilled professionals, all by outsourcing non-core BPO work to India. Make a
decision to outsource to India today and watch your business grow exponentially

3.3 MACRO:

Service Sector:

 Business Process Outsourcing (BPO)

  Expanding Trade in ICT-enabled Services

Until recently, cross-border trade in services attracted limited attention in GATS, in part
because its practical and economic significance was limited. However, technological advances
have accelerated possibilities for services trade across borders and has led to more cross-border
trade in many services. A number of services whose provision once required physical proximity
between the consumer and the supplier can now be traded via the Internet or other networks.

This includes, for example, e-banking, on-line computer and IT services, many forms of
professional and consultancy services, and on-line sales of hotel reservations, airfare and even
goods. In addition, many companies can now sub-contract or "outsource" activities they once
performed in-house. Business outsourcing (BPO), the topic of this issue*, has created many
opportunities, not least for developing countries, and has also opened doors to trade for small and
medium size enterprises. Outsourced activities may often be fairly low-skill oriented, but
increasingly knowledge intensive activities are also outsourced, such as research and
development and financial advisory services.

Bpo: increasing successful back-office exports

Business Process Outsourcing (BPO), a notion that includes a variety of business support
functions, is sometimes referred to as back office services. Such services can be outsourced to
domestic as well as foreign firms. They can now be provided remotely from locations far from
the head office or other final consumer by electronic means. When outsourced to foreign firms,
the GATS would apply. Many developing countries have succeeded in gaining BPO contracts in
recent years. BPO services may include customer support or sales and marketing support (e.g. by
means of call centres) for insurance, airline and many other industries. It also can include
accounts, bookkeeping, or payroll management, bill collection, and records transcription, to
name a few examples. They often require language aptitudes and a degree of skills and training,
but not necessarily at sophisticated levels, and can offer advantages such as lower costs

GATS Commitments

Some WTO Members have commitments on BPO-related services. It is important to keep in

mind that the Schedules, many dating from 1994, do not always reflect the reality on the ground.
Many companies in the industrialized world are outsourcing back-office functions, even if no
bound commitments exist in the GATS. A group of WTO Members have made requests of others
during the Doha trade negotiations to seek improved commitments on the cross border trade in
BPO and other services that are more commonly outsourced today.

Definition and Classification

BPO is not a sector in its own right in the GATS classification (W/120). This is in part
because the BPO activities can be performed on behalf of many different services and industries
and in some cases would fall under commitments in the sector concerned. Also, commercial
trends (streamlining and downsizing companies) and new technologies have opened possibilities
for international trade in these services that were not common at the time the GATS and UN
classifications were first elaborated in 1991.
Keeping this in mind, the most amenable part of the GATS sectoral classification is "Other
business services". This is a broad sector encompassing many different activities, from
advertising to convention management to packaging and photographic services.

Cross border trade

Outsourced BPO services often use the Internet, Internet-enabled technologies (such as
VOIP networks for call centres), private corporate networks, satellite links or a combination of
these to send and receive the services. While GATS cross border supply (mode 1) is most
relevant, consumption abroad (mode 2) may also be involved in a BPO services transaction. This
is because it may be difficult to distinguish between supply by modes 1 and 2. As a result, both
modes should be consulted for such services. In fact, in the Doha negotiations, Members are
seeking similar or at least consistent levels of commitments on both modes. Trade in an
outsourced activity probably does involve transactions that involve both mode 1 and mode 2. Put
simply, the firm that outsources the activity to a foreign country may be "consuming abroad"
while the foreign firm that performs the outsourcing contract would then deliver the service
across borders to the client.

Commercial presence and outsourcing

 The rapid growth of opportunities in BPO outsourcing have also inspired foreign
companies including both developed and developing countries to establish a base of operations
in client countries. This way, they can also take advantage of contracts awarded domestically.
When they do so, the activities would be trade covered by GATS commitments on commercial
presence (mode 3). In some cases, companies establish a commercial presence abroad to supply
BPO services in countries where foreign outsourcing has become popular. Once established, they
will usually export these services from the foreign base. For example, an Indian firm with
expertise in managing call centres has set up an operation in Mexico to supply Spanish-language
call centre services to the U.S. market. In such a case, a mode 3 commitment of Mexico would
relate to the ability to establish the firm, but mode 1 & 2 commitments of the United States
would govern whether the firm is entitled, under GATS, to supply the service from Mexico to the
U.S. client.

Export market regulations

GATS rules concern the regulatory conditions or requirements you may face in the country
where your client is located. As a relatively new trend, BPO often faces few formal regulations.
Nevertheless, it can be affected by measures in related industries. For example, cross border
BPO services that use VOIP or private networks may run up against restrictions on use of these
telecom services or requirements that the transmission may be terminated only on monopoly
networks. This can raise the cost of performing cross border BPO and reduce its feasibility.
Alternatively, to set up a commercial presence to supply BPO, companies will need to deal with
regulations and costs associated with establishment, investment and incorporation in the foreign
market, as well as local labour laws.

GATS schedules

Due to cross border trade having only recently become more feasible, restrictions are not
common. Therefore, mode 1 commitments tend to reflect a country's openness (or caution)
toward open markets, than they do a specific legal framework in place for cross border supply.
This is why many schedules indicate either no limitations, by listing "None" or "Unbound",
meaning no commitment. Sometimes entries may state "Unbound*", meaning not possible due to
lack of technical feasibility, even though new technologies have now made the supply possible.
Where cross border supply is "Unbound" or "Unbound*", there is no GATS guarantee on cross
border delivery of the service, although in reality market access might be possible.

Less commonly, some commitments include a limitation on cross border supply that says
a "commercial presence is required". In these instances, it is not always clear whether it means
that cross border supply is not committed or not possible, or whether it means it is possible to
supply the service cross border (e.g. from your parent company) so long as a subsidiary or
representative office is established. Suppliers will need to confirm such details with the
authorities. As in other sectors, commercial presence commitments may include limitations such
as a joint venture requirement or foreign equity limits.

Restrictions on government procurement

In recent years, perceptions in some countries about jobs lost to foreign outsourcing have led to
laws prohibiting the outsourcing of public contracts, or government procurement of services to
foreign firms abroad. Such laws may also prevent domestic companies from sub-contracting
portions of their government contracts to firms abroad. However, a foreign company with a
subsidiary in the country concerned may still qualify to bid on government contracts.
Bear in mind that government procurement is not covered by the GATS (Article XIII). Thus far,
no such legislation has extended the ban beyond government procurement to include contracts by
private companies to outsource their own back office functions.

Scheduling elements to bear in mind

BPO is an example of a sector where transactions may require attention to how both cross
border supply and consumption abroad (modes 1 & 2) are scheduled. To avoid confusion, the
ideal would be that the entries for both modes are the same or consistent with one another. For
example, it is difficult to be certain of your legal rights, under GATS, to take advantage of a
commitment with no limitations on cross border supply, if the entry for mode 2 (the ability of
your client to contract the services abroad) indicates no commitment, i.e. "unbound".
Also, since many types of BPO services are often not explicitly listed in schedules, to determine
if your service is committed, you may need to examine the coverage of W/120 and UNCPC
classifications in greater detail. A particular activity might actually fall within the underlying
definition of a certain service listed in a schedule or might be covered by the catch-all "other"
sub-sectors included in the GATS classification, if "other" is scheduled.

Outdated classifications

Another scheduling issue can arise when the terms or technologies described in the CPC
definition are out of date, making it unclear whether it is relevant to the services you are offering.
For example, the GATS classification "1.F.t. Other business services: other" lists its CPC
definition as 8790. CPC 8790 includes "telephone answering services". It might be possible to
argue, for lack of a better alternative, that call centre services are covered here. However, the
1991 CPC definition tends to imply services like those of a "receptionist", making it difficult to
assume with certainty that the commitment might cover call centres that handle services such as
reservations or claims processing.

In the Doha negotiations, a group of WTO Members has proposed using a portion of the 2002
UNCPC in schedules. This version of UNCPC more clearly indicates some of the business
support services. It remains to be seen whether some governments will agree to adopt this
approach, which would not be obligatory.
Services sector is the largest sector of India. Gross Value Added (GVA) at current prices for
Services sector is estimated at 92.26 lakh crore INR in 2018-19. Services sector accounts for
54.40% of total India's GVA of 169.61 lakh crore Indian rupees. With GVA of Rs. 50.43 lakh
crore, Industry sector contributes 29.73%. While, Agriculture and allied sector shares 15.87%.

At 2011-12 prices, composition of Agriculture & allied, Industry, and Services sector are
14.39%, 31.46%, and 54.15%, respectively. Share of primary (comprising agriculture, forestry,
fishing and mining & quarrying), secondary (comprising manufacturing, electricity, gas, water
supply & other utility services, and construction) and tertiary (services) sectors have been
estimated as 18.57 per cent, 27.03 per cent and 54.40 per cent.

According to CIA Fackbook sector wise Indian GDP composition in 2017 are as follows :
Agriculture (15.4%), Industry (23%) and Services (61.5%). With production of agriculture
activity of $375.61 billion, India is 2nd larger producer of agriculture product. India accounts for
7.39 percent of total global agricultural output. India is way behind china which has $991 bn
GDP in agriculture sector. GDP of Industry sector is $560.97 billion and world rank is 6. In
Services sector, India world rank is 8 and GDP is $1500 billion.

Contribution of Agriculture sector in Indian economy is much higher than world's average
(6.4%). Contribution of Industry and Services sector is lower than world's average 30% for
Industry sector and 63% for Services sector. At previous methedology, composition of
Agriculture & allied, Industry, and Services sector was 51.81%, 14.16%, and 33.25%,
respectively at current prices in 1950-51. Share of Agriculture & allied sector has declined at
18.20% in 2013-14. Share of Services sector has improved to 57.03%. Share of Industry sector
has also increased to 24.77%
3.1 SERVICE SECTOR CONTRIBUTION

Services Sector
share %
0%

constant
price
43%
Current price
57%

share%
0%

3.2 SOFTWARE INDUSTRY CONTRIBUTION

Software industry Contribution

100%
90%
80%
70%
Percentage

60% 766193 6.81 935575 6.76

50%
40%
30%
20%
10%
0%
1 2 3 4
Current price