Retail off shoring

Every one knows India’s retail sector is poised to take off and will be among the top five retail markets in the world in the next 10 years. But that is only one part of the big story. For making the most of the retail boom worldwide is another sunshine sector that is the IT and ITeS. While global retail chains are chalking out their India plans, Indian IT firms are quietly providing them back office and other core support from here.

What’s more, most top retail chains are either outsourcing their work to third parties in India or opening captive centers here. And it’s been happening for sometime now. For example, UK-based chain Tesco, has set up a back office Hindustan Service Center in Bangalore with a headcount of 2,000 people. Similarly, target, a US based retailer has a captive center in Bangalore and is planning to expand it. Marks & Spencer, Sainsburys, Best Buy et al have all outsourced their work to India. Studies forecast that retail off-shoring will double in the next couple of years as retail business gathers momentum world wide. Research done by Everest Group reveals the global IT and business process outsourcing spend by retail firms is worth over $10 billion per annum as of now. Nearly 75% of this relates to IT and the remaining 25% is contact center HR, finances and accounts, procurement etc.

Already, business worth $1.5 to $2.0 billion is being off-shored to India. And companies like Infosys, TCS, Wipro, Satyam, Cognizant etc see 6 to 12% of their revenues coming from retail outsourcing services alone. This translates to over $1 billion per annum. And the figure is growing. Retail out sourcing spending on IT and BPO is growing rapidly. The volume of ad is at over 20% over the last few years. And Indian firms too could continue to see their revenues grow from retail IT and BPO increase,

Traditionally retailers started by outsourcing their IT functions to India but gradually they have embraced BPOs as well. Typically a retailer looks at improving the level of customer satisfaction, which means offering better service to the customer while keeping expenses under check. Amongst the BPO services, customer relationship management is the most commonly outsourced function.

With growing competition, retailers are adding newer channels to sell their product. The accent of out sources to stay ahead of competition will accelerate off-shoring in the retail space. Besides offering CRM, HR and finance and accounting services, Indian ITeS companies are now also doing a lot of research and analysts based work.

They provide retailers an insight into buying patterns of shoppers and give them valuable information about products, pricing and distribution. KPOs like Evalueserve. Manthan and Integrate Retail are offering retail analytics, which include merchandise planning. However, Gupta feels the time is right for Indian retailers to make the most of outsourcing.

It’s not about arbitrage or cost-cutting anymore. If domestic retailers outsource their work, it will improve bottom lines and their margins will increase. The money they save could be reinvested and help them expand.