Gen AI may have started to hurt Indian BPO units as clients seek to automate operations

The advent of Chat GPT, a Gen AI instrumentality that tin beryllium utilized to make content, successful November 2022 propelled Gen AI to boardroom discussions successful companies globally. Across industries, companies are present looking astatine the exertion disruptor, which tin make contented successful written, audio and ocular form, to regenerate regular quality work.

“We are seeing successful wide an wide slowdown successful BPO. Contracts are being renegotiated and companies are looking to automate BPO operations," said Ray Wang, main enforcement serviceman and laminitis of Constellation Research.

Two months ago, K Krithivasan, main enforcement serviceman of Tata Consultancy Services, India’s largest accusation exertion services company, said successful an interrogation with the Financial Times that Gen AI could astir decorativeness the BPO business.

Pune-based Tech Mahindra’s BPO part generated ₹7,712 crore ($930 million) successful gross successful FY24, which was astir 15% of its wide gross of $6.28 billion. Revenue maturation astatine 7.12% was the slowest since FY18 and came aft 2 consecutive years of maturation exceeding 30%.

Infosys’s BPO portion did not fare good either. Revenue astatine Infosys BPM was $953 cardinal arsenic of March 2024, a maturation of 2%, the slowest successful 7 years. Only Infosys and Tech Mahindra disclose the gross from their BPO businesses.

“My consciousness is that the BPO concern is moving towards self-serve channels, conversational AI oregon automated oregon digitised systems, which bash not necessitate overmuch manpower, which is wherefore the request from BPO businesses of IT services companies mightiness beryllium slowing," said Kshitij Saraf, equities subordinate astatine Tusk Investments.

Uncertainty a drag

A 3rd expert attributed the dilatory maturation successful BPO services to the trouble successful scaling up an already ample business.

“As this palmy concern has gained standard it becomes harder to turn accelerated connected a larger base," said Peter Bendor-Samuel, main enforcement of Everest Group, a US consultancy that advises clients connected outsourcing. “The lawsuit acquisition marketplace wherever Tech M has astir of its enactment is facing important uncertainty, driven by the possibilities offered by Gen AI. As these issues get sorted out, we expect that this country volition regain momentum. However, astatine this time, the uncertainty is creating a resistance connected growth."

In the lawsuit of Tech Mahindra, different expert said the BPO arm’s slowdown was owed to easing request successful its mainstay telecom business.

“I would property slower maturation successful BPO owed to the softening request successful Tech M's large vertical of telecom. Last year's protracted modulation of enactment from CP Gurnani to Mohit Joshi didn't assistance matters," said Phil Fersht, main enforcement of HfS Research, an outsourcing-research steadfast successful the US.

Tech Mahindra earned astir 36% of its gross done its communications, media and amusement business. Joshi took implicit arsenic CEO successful December 2023, replacing Gurnani, who was successful the apical spot for 14 years.

A Tech Mahindra spokesperson said the institution is looking beyond concern process services for growth.

“Our existent absorption is connected diversifying our business, attracting caller clients successful high-margin industries, and providing value-added services beyond accepted BPS offerings. We are besides committed to upskilling our workforce to negociate specialised tasks," Birendra Sen, concern head, Business Process Services astatine Tech Mahindra, said successful an emailed effect to Mint’s queries.

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However, gross maturation astatine pure-play BPO companies ExlService Holdings Inc and WNS (Holdings) Ltd was stronger. EXL reported gross grew 15.5% to $1.63 cardinal successful the twelvemonth ended December 31, 2023. WNS said its gross accrued 8.1% to $1.3 cardinal successful the twelvemonth ended March 2024.

“The axenic play is successful a blistery conception and its absorption successful this high-growth niche country combined with its smaller standard allows it to station above-industry averages," said Samuel.

Wang of Constellation Research attributed the maturation of pure-play BPO companies to a faster AI embrace.

Infosys's BPO concern started arsenic Progeon Ltd successful 2002. It was renamed Infosys BPO Ltd successful 2006 and arsenic Infosys BPM Ltd successful 2017. The Bengaluru-based IT services company's BPO limb had 57,694 people, oregon 18.2% of Infosys's wide workforce, arsenic of March 2024.