GenAI disrupts Indian BPO sector, slows revenue growth
MUMBAI, INDIA — The advent of generative artificial intelligence (GenAI) has significantly impacted the business process outsourcing (BPO) sector in India, leading to the weakest revenue growth in years for major players like Infosys and Tech Mahindra.
The introduction of ChatGPT in November 2022 brought GenAI to the forefront of corporate strategies globally, prompting companies to explore automation for routine tasks traditionally handled by human workers.
Slowdown in BPO operations
“We are seeing in general an overall slowdown in BPO. Contracts are being renegotiated and companies are looking to automate BPO operations,” said Ray Wang, CEO of Constellation Research.
This sentiment was echoed by K Krithivasan, CEO of Tata Consultancy Services, who suggested that GenAI could potentially end the BPO business as we know it.
Financial performance of major BPO units
Tech Mahindra’s BPO division reported revenue of ₹7,712 crore (US$930 million) in FY24, contributing 15% to its overall revenue. However, the growth rate of 7.12% was the slowest since FY18, following two years of over 30% growth.
Similarly, Infosys BPM’s revenue growth slowed to 2%, the lowest in seven years, reaching $953 million as of March 2024.
Shift towards automation and AI-driven solutions
“My sense is that the BPO business is moving towards self-serve channels, conversational AI, or automated systems, which do not require much manpower,” said Kshitij Saraf, equities associate at Tusk Investments.
This shift is causing a decline in demand for traditional BPO services.
Challenges and market uncertainties
Peter Bendor-Samuel, CEO of Everest Group, attributed the slow growth to the challenges of scaling large businesses and market uncertainties driven by GenAI.
“The customer experience market where Tech Mahindra has most of its work is facing significant uncertainty,” he noted.
Phil Fersht, CEO of HfS Research, added that the slowdown in Tech Mahindra’s BPO arm was also due to easing demand in its telecom business.
Diversification and upskilling initiatives
In response to these challenges, Tech Mahindra is focusing on diversifying its business and upskilling its workforce.
“Our current focus is on diversifying our business, attracting new clients in high-margin industries, and providing value-added services beyond traditional BPS offerings,” said Birendra Sen, business head of Business Process Services at Tech Mahindra.
Pure-play BPO companies show resilience
Contrary to the struggles of traditional BPO units, pure-play BPO companies like ExlService and WNS have shown stronger revenue growth.
ExlService reported a 15.5% revenue increase to $1.63 billion in 2023, while WNS saw an 8.1% rise to $1.3 billion. Wang attributed this success to their faster adoption of AI and automation.
