Setting up a business process outsourcing (BPO) firm [updated]

10 min read
Toshani B

There’s never been a better time to start a business process outsourcing or BPO company in India. Spending on business process outsourcing (BPO) services is expected to grow at a compound annual growth rate (CAGR) of 5.8 per cent to reach $8.8 billion by 2025. And India is the world leader in BPO.

"It was in India where the modern concept of outsourcing started," says Ralf Ellspermann, CEO of PITON-Global.

Adding a BPO to an existing IT or web development business can be an effective way to grow.

By definition, BPO is a business practice in which one organization hires another company to perform a task or a process that the hiring organization requires for its own business to successfully operate. These include:

  • Accounting.
  • IT and web development services.
  • Human resources (HR).
  • Quality assurance (QA).
  • Payment processing.
  • Customer relations.
  • Marketing and sales.

Let us explore how small startups in these industries can gain more clients by promoting their services to other businesses — both homegrown and abroad.

How to start a BPO

Many companies look to Indian BPOs to handle their call center, IT, web development or other business processes. Follow these steps to start a Business Process Outsourcing company of your own.

  1. Determine the type of BPO you want to start.
  2. Write out a business plan.
  3. Do the paperwork.
  4. Invest in the necessary equipment.
  5. Start by accepting short contracts.

Keep reading for tips on hiring, training and promotion.

1. Determine the type of BPO you want to start

Business Process Outsourcing Man Installing Hardware
BPOs offer everything from accounting and human resources to IT and web development services.

You need to have strong business acumen and some expertise in your field to know how to run the show in the BPO sector. You have a couple of ways to approach this:

  1. Specialize in a specific function that you provide across different industries (known as horizontal BPO).
  2. Tailor your services to a specific vertical such as healthcare, financial services, manufacturing, retail or utilities and energy (called a vertical BPO).

The most common BPO services include:

  • Inbound and outbound calls via trained professionals.
  • Transcription services.
  • Website design and SEO services.
  • Processing medical bills and claims.
  • Data entry services.

When setting up a BPO business, it is smart to focus on niche markets. At the same time, it is good to be flexible and open to local and global workforce demands.

2. Write out a business plan

The key to success of your BPO business — like any other entity — is a good business plan. It should include components such as:

  • Projected sales over specific periods of time.
  • Marketing and promotional activities you plan to implement.
  • Funding (whether self, loans or VC funding).
  • Expenses, including cost of equipment and employee salaries and benefits.

The business plan needs to be thorough and detailed, as it will also help you determine what you need financially.

Business Process Outsourcing Woman Working
A good business plan will help you solidify your plans and get business funding.

Preparing a business plan shows you are serious about the endeavor, and it can help you secure capital through angel investors, government/bank loans or venture capitalists.

3. Do the paperwork

For setting up a business process outsourcing firm in India, you are required to register your business under the Companies Act 2013. Call center and other IT-enabled services should register as Private Limited Companies.

This requires minimum two directors and two shareholders; both can be same person if you want to start small. All directors and shareholders require:

  • PAN.
  • Aadhaar.
  • Bank statement.
  • Photo.
  • Mobile and email ID.
  • Address proof and NOC form.

You can read details on how to register your business here. Once the company is registered, its directors or promoters should open a bank account in the company name.

BPOs doing business via telecom resources must also obtain Other Service Provider (OSP) Licences from the Department of Telecommunication.

Finally, GST registration is required once you have received the OSP Registration Certificate.

4. Invest in the necessary equipment

Those operating call centers will need to invest in good computers, as well as reliable telephone lines and a high-speed internet connection. Most importantly, you’ll need to office space, even if it is a small rented facility or your garage.

Besides regular office supplies, you will also need to purchase:

  • Call center software that integrates with your business tools.
  • Call conferencing and monitoring software.
  • A call recording system.
  • An automatic caller information screen pop-up.
  • Good headsets.

In recent times, the business process outsourcing industry has made use of emerging technologies such as cloud computing, social media and automation to reduce costs and accelerate growth. These are the ideal way to get greater ROI, but it is advisable to deploy technologies in a phased manner.

5. Start by accepting short contracts

Established BPOs have a reputation and a wide network that generates referrals. But for starters, it is best to let client companies try you out for a short time. This will in turn lead to bigger projects.

If you want to offer free trials, say for a few hours, that would be even better.

Some companies might be skeptical about using a new outsourcing company.

Your commitment and the quality of your service will help you win over some good long-term contracts and gradually become a known name in the BPO sector.

Hiring and training

Business Process Outsourcing Computer Screen Showing Code
The best approach is to start small, hiring more staff as you gain clients.

It is advisable to start small. Just imagine, if you have a 20-seater BPO and not a single client, how do you intend to pay salaries to them? You can start only with two to three people. Ensure that your clients come before the hires.

One option is to outsource the work to reliable part-time or work-from-home candidates.

Many women, especially those with children, prefer this kind of a setup.

A few tips on hiring and training:

  • Advertise in your local newspaper as well as on the internet on local job sites.
  • Look for people who know how to talk and listen to customers while doing other tasks.
  • Offer short coaching sessions for both full-time and part-time hires. For this you should allocate some funds.
  • Set fixed hours or arrange your shifts to perform all the necessary services round-the-clock.

Employees in the BPO sector often do not work in regular shifts. So the training program should enable them to understand and adjust quickly to the changes in schedule and work environment.

While you are expected to hire people who have the right skills, customizing their skills to the needs of specific clients will win you valuable customers. It will also help you gain an edge over your competitors.

Promotion is key to success

Marketing is essential to creating demand for any BPO business. Opt for all the low-cost strategies first, such as:

  • Networking.
  • Social media.
  • Referral partners.

Depending on your budget, part of your digital marketing activity can be outsourced to an expert company.

If feasible, you should advertise on various outsourcing forums, besides having active pages on Facebook, Twitter, LinkedIn, YouTube and other social platforms.

Also, as a reputable business you will need to create a professional website and of course a good domain name to go with it, one that represents your business.

A final word on business process outsourcing

The BPO sector is booming in India. It has also diversified beyond its beginnings. Indian BPOs now offer almost every service imaginable, including ITES outsourcing, with qualified staff able to work remotely in areas like coding and support.

Big corporations in the U.K. and the U.S. hire Indian BPOs because of their efficiency and low cost.

When done effectively, Business Process Outsourcing services guarantee you good profits and great success. If patience, problem solving, and adaptability are your virtues, this is indeed the right time for you to launch a BPO firm. Good luck!

Frequently Asked Questions

What is a BPO? Give examples.

Business Process Outsourcing (BPO) is when a company in any industry gives responsibility for internal business functions to third-party vendors (in other words, those outside their business).

BPO services are of great demand owing to benefits such as:

  • Reduced costs
  • Increased flexibility
  • Enhanced service quality

BPO also allows organizations to remain focused on their core business activities so that they can deliver value to their customers.

The most common examples of this type of outsourcing are functions and departments like payroll, human resources, accounting, and call centers.

What are the different types of BPOs?

Based on its services and functionalities, BPO services are often divided into two main types:

Back office

Back-office services include internal business processes such as accounting and finance, human resource management, quality assurance, among others.

Front office

Front-office services include, looking after a client's customer-facing businesses, such as marketing, and sales, customer service and tech support, etc. Some BPOs combine these services so that they can function together.

The BPO industry can also be categorized into three types based on its location.

  • Onshore – The Onshore BPO company operates its business in the same country as the client/contractor. However, they could be located in a different state or city. For example, a customer in Mumbai or Chennai, can outsource their jobs to a BPO firm in Delhi.
  • Offshore – These BPOs are situated in a different country from customers/contractors. For example – A company in the United States or Australia could outsource their business processes to a BPO company in Indonesia or India.
  • Nearshore – These BPO companies are located in close by or neighboring countries, like a customer in Germany outsourcing their work to a BPO company in Poland.

How did COVID-19 impact BPOs?

Before COVID-19, BPOs were a fast-developing sector providing a large number of jobs. COVID-19 and the ensuing lockdown took a toll on the Indian BPO industry.

The businesses which needed services from the BPO industry to support their retail operations suffered, as the entire retail market and distribution channel was totally shut.

Work-from-home for BPO companies was not an easy job. Companies, especially in banking, finance and those that require high data sensitivity client protocol disallowed transfer to work-from-home mode and thus, operations remained halted.

IT infrastructure became a key problem making work-from-home difficult. Disruptions caused by essential technologies or setup such as laptops/desktops, poor internet connectivity and other technical glitches, added to the woes.

As India reopens, the spending on business process outsourcing (BPO) industry in India is expected to grow at a compound annual growth rate (CAGR) of 5.8 per cent to reach $8.8 billion by 2025. This is due in part to a liberalisation of regulatory guidelines put in place to sidestep competition from countries like the Philippines, Malaysia, Mexico, and Canada.

What is the future of BPOs in the post-COVID 19 era?

The COVID-19 pandemic created major disruption to businesses worldwide and the BPO industry was no exception. But the changes brought to business functions due to these disruptions are providing impetus to the market in the long run.

Most BPO companies realized the need to change their business models. Many restructured their business continuity plans (BCP) to a distributed workforce, where their employees can work from remote locations.

The post COVID-19 BPO is stronger and more resilient. As more firms are increasingly focusing on reducing the cost of conducting business, BPOs of today should equip themselves with the right technologies such as cloud computing and artificial intelligence (AI) and more for driving business efficiency.


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UPDATE: This business process outsourcing post was first published on 18 March 2019 and updated 26 May 2022.