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Business Laws

Bussiness Process Outsourcing

Bussiness Process Outsourcing


Business Process Outsourcing (BPO) is a relatively recent phenomenon that has emerged across the world. Improved communications and advanced technologies have enabled the use of such technologies for the purposes of saving cost, time, effort and money. Business Process Outsourcing (BPO) is one such application.

The term BPO has been defined by different businesses in different manner. Some of these definitions are as under :

  • BPO (Business Process Outsourcing) can be defined as a contractual service to completely manage, deliver, and operate one or more (typically IT-intensive) business processes or functions.

  • BPO is "that of transferring some of an organizations recurring internal activities and decisions rights to outside providers, as set forth in a contract.

  • Transfer or delegation to an external service provider he operation and day-to-day management of a business process.

The basis of the BPO industry is built around the raison d'etre of efficiency and cost-effectiveness. In a typical scenario, many companies today outsource their business functions to expert partners. These expert partners take a set of activities on the responsibility of engineering, the entire way the operations are done.

Advantages of Business Process Outsourcing

The advantages can be listed out as follows :

  • Business Process Outsourcing indeed presents a win-win situation for all stake-holders.

  • BPO by incorporation in the developed countries offer tremendous advantages as the costs of labour and man power are extremely high in developed countries in comparison to the rates of labour and manpower in developing countries who provide more competitive rates.

  • BPO is normally resorted to by companies both in good and bad times and there is incentive fordoing so. In bad times, companies want to reduce costs and in good times companies want to focus on growth.

  • Outsourcing enables companies to meet constantly changing customer demands.

  • By outsourcing known core processes, companies are able to focus on improving their sales and market shares, developing and expanding new products and markets and enhance customer satisfaction and service.

The many advantages offered are as follows :
  • Improve Competitiveness

    • Focus on core competencies

    • Increase flexibility to adapt to the changing environment

    • Improve customer satisfaction

    • Access relevant skills and expertise

    • Improve credibility and image through association

    • Quickly ramp up business operations and product/ services offerings

    • Serve larger markets

  • Increase Control

    • Bring operational efficiency

    • Improve process performance

    • Monitor organizational activities

    • Transform or restructure organisation

    • Reduce responsibility and liability

    • Better risk management

  • Reduce Costs

    • Access higher-level human resources at lower cost

    • Obtain advanced technologies without significant upfront costs

    • Acquire innovative concepts and products

    • Capitalize on low cost structure of the provider

    • Release capital and reduce financial costs

    • Reduce operational costs

What Can Be Outsourced
  • Administrative

  • Finance and accounting

  • Human Resources

  • Payment services

  • Manufacturing Service

  • Distribution logistics

  • Sales/marketing

  • Customer Care

  • Legal Services

Advantage India

The Business Process Outsourcing sector has taken the Indian economy by storm. What initially began as a trickle is slowly rowing into a flood. In the last few years, the growth of the outsourcing sector in India has been remarkable. This sector has primarily grown through the entrepreneurial spirit of companies who have exploded on to the scene and exploited the potential of India for providing outsourcing services at extremely competitive rates.
India provides fertile ground for the thriving growth of outsourcing. This is due to the several reasons stated below :

  • India has a large section of population that can converse in English.

  • It has plenty of educated and cheap man power and is cost effective.

  • Every year, approximately 19 million students are enrolled in high schools and 10 million students in under-graduate degree courses across India.

  • A high percentage of computer sciences graduates results in India's access to a large resource pool providing IT services.

  • India has many prestigious technical universities, but the Indian Institute of Technology stands apart as one of the world's best. India produces 75,000 IT graduates and 2 million English-speaking graduates annually.

  • India produces 75,000 English speaking IT professionals every year.

  • India has got more than 200 companies being quality accredited and serving the needs of over 255 Fortune 500 companies

  • Already 316 Indian software companies have acquired quality certifications and more companies are in pipeline to do so.

  • Salary levels in India re lower than most salary levels in other countries that have become center for off shore outsourcing.

  • 67-72% of costs to call center operating in the U.S./ U.K. are directly linked to manpower costs. India, on the other hand, spends only 33-40% of costs on manpower.

  • India's unique geographic position enables it to offer a 24x 7 service and quicker turnaround by leveraging the time zone differences.

Bpo Legal Issues

There are various legal issues which impact the BPO sector in India. These legal issues relate not just to contractual issues impacting the different contractual agreements between contracting parties, but also encompasses various other legal issues. From the time a company or legal entity decides to start BPO sector operations to the conclusion of a BPO contract, the entire chain of events has various legal perspectives. For the same appropriate legal permissions have to be obtained in terms of an appropriate license for running a call centre in India.

An Indian BPO service provider, since located in India, is duty bound to comply with the various provisions of Indian laws which impact the outsourcing industry. These laws include the following :

  • Foreign Exchange Management Act,1999

  • DOT (Department of Tele Communication) regulations

  • The Information Technology Act, 1961

  • The Trade Mark Act, 1999

  • The Patent Act, 1970

  • The Arbitration and Conciliation Act, 1996

  • The Indian Contract Act, 1872

  • The Information Technology Rules, 2000

  • Other Notifications/laws relating to or impacting the BPO sector.

The Foreign Exchange Management Act deals with legal regulation and management of foreign exchange in India.

The Department of Tele communication has come out with various guidelines and regulations for setting up call centers and for establishing Internet providing businesses.

The Information Technology Act, 2000 being India's first cyberlaw, is aimed at regulating the electronic medium and all matters relating to computer systems and computer networks in India.

The Income Tax Act, 1961 is a consolidating and amending legislation relating to Income Tax. It provides complete machinery for the assessment of tax. It provides complete machinery for the assessment of tax. It provides for computation of income and deduction of income tax to be made by competent authorities. It provides for rebates and has detailed provisions relating to liability, collection and recovery.

The Trademarks Act, 1999 is a legislation, which enables the client, as also the BPO service provider to protect their trademarks and service marks in India.

The Patent Act,1970 provides the legal framework for patenting in India.

The Arbitration and Conciliation Act, 1996 is the only prevailing law relating to dispute resolution in India in the form of arbitration and conciliation.

The Indian Contract Act provides for legal principles for contracting in India.

The Information Technology Rules, 2000 provide for various issues relating to Information Security. In addition, the government has come across with various notifications, which impact the BPO sector in India.

Legal Formalities for BPO operations In India

Obtaining Dot Licence

The Department of Telecommunications (DOT), Government of India is the relevant department that looks after the permissions relating to the BPO sector in India. It is also in charge of applications like Tele-banking, Tele-medicine, Tele-education, Tele-trading and e-commerce. Other service providers are allowed to operate by using infrastructure provided by various access providers. No licence fee is charged, but registration for specific services being offered is required.

The essential features of the guidelines for setting up an outsourcing unit, as stipulated by DOT Government of India are as follows :

  • The Outsourcing units are permitted to Indian registered companies on non-exclusive basis.

  • The units are registered under the 'Other Service Provider' (OSP) category as defined in national telecom Policy', 1999.

  • The validity of this permission is up to 20 years from the date of issue of the permission letter.

  • 100 % Foreign Direct Investment is permitted in such units.

  • The units have to ensure that no change in the Indian or Foreign promoters/ partner or their equity participation is made without prior approval of competent authority or s per prevailing regulations.

  • The units can take the resources from any authorized service provider i.e IPCL from the authorized International Long Distance operators and local leased line from any authorized Service Provider.

Whenever any company wants to start a Legal Process Outsourcing unit, they have to submit an application as per the provisions of aforesaid guidelines to DOT. This application has to be submitted on the letter head of the applicant company.

Taxation of Legal Process outsourcing Units in India

A non resident or a foreign company is treated as having a permanent establishment or business connection in India under article 5 of the Double Taxation Avoidance Agreements or under section 5 of the Income Tax Act, 1961, if the said non-resident or foreign company carries on business in India through a branch, ales office etc., who habitually exercises an authority to conclude contracts, or regularly delivers goods or merchandise, or habitually secures orders in India, on behalf of the non-resident principal. In such a case, the profit of the non-resident or foreign company attributable to the business activities carried out in India becomes taxable under the Income Tax Act, 1961.

The manner and extent of such attribution of profits will eventually depend on the facts of each case and nature of services rendered by such units, and the same has to be determined in accordance with the provisions of the treaty applicable and the domestic law. However, in case where a non-resident, carrying on manufacture and sale of goods or merchandise or provision of services outside India, out sources some of its incidental activities viz conclusion of contracts and procurement of orders to an IT enabled entity in India, which constitutes a permanent establishment of the non-resident principal, then the insignificant profit which is difficult to determine and attributable to the conclusion of such contracts or procurement of such orders can be considered to be embedded in the income of the permanent establishment taxable in India, if the price charged in respect of the above services by the permanent establishment is an arms length/ fair market price. In such a situation, therefore, no income shall separately accrue or arise or be deemed to accrue or arise to the non-resident principal in India.


From the discussion above, it is clear that the perception that BPO operations do not require legal attention is a myth. BPO operations are as complicated and technical as any other operation. India has already seen tremendous growth in the BPO industry.

There are indeed various issues which critically impact the sector. Non-compliance with law or ignoring legal aspects related to BPO operations can cost dearly both the clients as also the Service Providers and their sub-contractors.

It will be sensible for clients of BPO operations to insist upon compliance with various legal requirements in order to ensure smooth BPO operations with minimum liability. From the perspective of BPO Service Providers, it ill be prudent to fulfill the requirements of law and take appropriate legal precautions to ensure that their BPO operations are legally secure and are not surrounded by legal infirmities.



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