The Hindu : Business : Is threat to Indian BPO real or a myth?

Online edition of India's National Newspaper
Wednesday, Apr 14, 2004

Business

Business

Is threat to Indian BPO real or a myth?

By Shanthi Kannan

CHENNAI, APRIL 13. India's business process outsourcing (BPO) segment, a virtually non-existent space a few years ago, has grown to $2 billion now. The industry expects a steady growth in this segment, as India is still a favourable destination for back office jobs because of its well-developed communication infrastructure, stable business environment and highly skilled technical talent pool.

According to a recent study by the BPO committee of the Associated Chambers of Commerce and Industry (Assocham) and International Data Corporation (IDC), certain limitations of countries competing in this space have put them a shade behind India.

China has limitation in terms of English-speaking capability. Mexico is good for low-end jobs. Canada and South Africa are costlier than India. In order to overtake India in BPO, they will have to overcome these disadvantages.

The question, however, is: How long can the Chinese power be curbed? It has the potential to become a major BPO power in the world, according to ICRA. The main strengths of China in the global outsourcing market are its manufacturing prowess and rising IT competence.

The Chinese Government is proactive towards the BPO sector. For instance, it has invested over $5.4 billion in nine universities to promote English language and other skill sets.

Today, most clients want to look at offshoring. The obvious reason is to reduce operating costs, by up to 50 per cent in some cases, since hourly rates for workers in Asia and other emerging markets are anywhere between 30 and 75 per cent lower than they are in the U.S.

According to an estimate by Forrester Research, 3.3 million U.S. service-industry jobs will go offshore in the next 15 years. Phaneesh Murthy, CEO, iGATE Global Solutions, feels jobs will migrate to where it can be done best.

There are, no doubt, factors that benefit Indian companies. What will this mean to India in the next 2-5 years? According to a few IT analysts, global sourcing is causing downward price pressure on all service providers, domestic and foreign.

To compete on the price front with Indian companies such as Infosys Technologies and Wipro Technologies, the U.S. service providers will need to open centres in India and elsewhere.In spite of added advantages, the industry still feels a threat to the Indian BPO.

The fact is that workers' unions in the West have begun a huge campaign against jobs being shifted to low-cost centres. This pressure is also proving a major threat to India.

In the present scenario, Indian companies should continue to deliver value to customers and further improve upon that by way of productivity and effective gains, says Shiva Ramani, Chief Executive Officer, Slashsupport. The focus should be on quality and not the cost being the driver for new businesses, he feels.

Going forward, BPO, in which companies contract for services ranging from HR record keeping to basic accounting and airline reservations services, will explode, from $ 110 billion in 2002 to $173 billion in 2007, according to Gartner. In the future, the focus will be less on offshoring discrete processes within a department and more on moving the entire (all of HR, for example) offshore.

In future, the situation for BPO companies is going to be tough, says the Assocham-IDC study. The players will have to deal with business-critical issues such as the upfront capital requirements, increasing competition, declining pricing and the much needed market reach in prominent geographies. To hedge their bets, smart companies will focus on developing a true global delivery model, hiring multiple vendors in multiple locations, depending upon which can provide the best quality at the best price for each service.

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