Business process outsourcing (BPO): India
This is a collection of articles archived for the excellence of their content.
BPOs (Business process outsourcing)
2018: downward slide begins
General Electric (GE) was once the lifeblood of many Indian IT services companies. The maker of aircraft engines, locomotives, electric motors and wind turbines was one of the earliest and biggest outsourcers of IT. Over the last couple of years, though, GE’s chief information officer Jim Fowler has been trying to reverse that.
In late 2016, about 74% of the company’s IT functions were outsourced. Fowler told TOI then that he was working to bring it down to 50% by the end of 2017. “We had given up a lot of our intellectual property. We didn’t understand our own business processes and one of the things is to rebuild that talent base,” he said on a visit to Bengaluru to launch a centre to do digital work.
GE is no exception. A number of multinational companies (MNCs) are setting up global in-house centres (GICs) to do jobs that were previously outsourced, and that’s a reason why Indian IT services companies are witnessing a sharp slowdown in their growth. “The first thing an MNC does when it sets up a global in-house centre in India is to take work away from these partners, not bring work from their overseas centres,” says Pari Natarajan, co-founder of GIC and R&D consulting firm Zinnov. Multinationals in the banking, financial services and insurance (BFSI) sector are leading in the setting up of GICs. This explains the slowing of the BFSI segment for IT services firms.
Deutsche Bank’s COO Kim Hammonds told TOI late last year that she had reduced the extent of outsourced tech from 80% in 2013 to about 50%, and that the downward trend would continue.
Lalit Ahuja, CEO of Ansr Consulting, which has helped bring a slew of GICs to India, says that with insourcing GICs see a 20% cost benefit, and 30% to 50% productivity improvement. “1,000 outsourcing people become 600 GIC people. Outsourcing companies hire freshers from tier-3 institutions. GICs hire high-quality people who have unhindered access to intra-company resources. They are driven by a mission — to do a job, not a project,” he says.
GE’s Fowler made the same point: “Where they (the IT vendor) had a team of 30, we had a team of 10 here. And the 10 people are producing code of a higher quality than we were getting from the 30.”
Therace Risch, CIO of JCPenney, believes an in-house centre would lead to lower turnover of people. The company would have “people who really understand our systems, people who are passionate,” he says.
Nitin Prasad, chairman of Shell India, which too is insourcing rapidly, said the company finds it “can create greater value and synergy when our people talk to our own people”.
So is this part of a cycle in which the MNCs would sell the GICs or turn to other outsourcers when the new technologies cease to be competitive differentiators, like it happened a decade ago? Natarajan thinks it will happen, but Ahuja is more hopeful. He’s convinced a fundamental shift has occurred, where technology will remain core to enterprises. The casualty, he believes, will be outsourcing.
2013: The last hurrah of a once-great employer
Expensive manpower, inadequate language skills and poor infrastructure are forcing BPO businesses to leave India. Young job seekers are the victims.
BPO industry dying
In 2003, Varun Navad, 23, an electrical engineering graduate from Manipal, travelled to nearby Bangalore to join a city-based BPO company. The Rs 8,000 he would earn every month was higher than most other offers he had. Moreover, Bangalore was a cosmopolitan cauldron, teeming with well-paid youngsters who splurged on films and food. But a few years into the profession, he became disillusioned. Stressful night shifts and a perennial threat of job loss as recession gripped the developed world took a toll on his health. "I have seen entire batches of 300-400 people being asked to leave in the industry after being given a month's notice, when jobs got moved elsewhere or US companies cut down work in India," he says. Before he faced the axe himself, in 2011, a worried Navad left his job to join a start-up that analyses stock market data for high-net-worth individuals.
Many Indian BPO companies have scaled down their 'voice' business by as much as 60 per cent.
The call centre culture, that mushroomed in Indian cities like Bangalore, Mumbai, Gurgaon and Pune in the early 2000s, is dying a slow death. After a boom in the 2004-06 period, which saw business margins, a measure of a company's profitability, as high as 40 per cent of total revenue, the sector has slowed down to modest margins of 15 per cent of revenue. Many Indian bpo companies have scaled down their 'voice' business by as much as 60 per cent. Others have shifted their English language call centres, servicing US clients, to countries such as the Philippines, Malaysia and China. Almost all of them have turned focus to more value-added 'non-voice' work that includes high-end analytics, it services bundled with BPO, and cloud computing offerings. The industry likes to call this a transformation for the better, but it is painful for the thousands of young people without job prospects.
"In the last five years, India has lost one million jobs in the customer contact business to countries like the Philippines," says T.V. Mohandas Pai, former director of human resources at Infosys Technologies, which started a BPO arm in 2002 in Bangalore. For a sector that employs 1.98 million directly and 7.5 million by indirect means like those providing transport and security services, the loss is significant. This has had an impact on the combined IT-BPO space too, whose growth slowed to just 6 per cent in 2009-10. Although it recovered to 10.9 per cent growth last year, it is still a far cry from the 30 per cent-plus growth in the pre-Lehman Brothers collapse days.
The language gap
Servicing clients in the West, the major work for bpos, remains a challenge. Ironically, language is proving to be a problem. The knowledge of English is no longer an obvious advantage. Indian accents are a problem. Despite intense training imparted by BPOs, US companies find the heavy Indian accent unacceptable to many customers.
"India as a delivery location is still challenged by English being spoken with strong accents, which can sometimes be hard to understand," says Cathy Tornbohm, vice-president, BPO research, at Gartner, based in the UK.
Countries like the Philippines, on the other hand, have had a history of cultural exchanges with the US and are becoming a better choice for call centre operations, despite high staff cost. While an entry level BPO worker in an international call centre in India would earn Rs 17,000 to Rs 18,000 a month, a Filipino worker would get 15 per cent higher. At team leader levels, comparative salaries would be 20-25 per cent more in that country, and at senior management levels, as much as 50 per cent higher. "Each country has its own location-specific differentiators," says Keshav R. Murugesh, Group CEO, wns, a bpo firm based in Mumbai. In the last two years, India has lost 75,000 jobs in the BPO space to the Philippines alone.
Zensar Technologies CEO Ganesh Natarajan says the Philippines has an "amenable" workforce. Manila, the country's capital, has emerged as a top bpo destination with its adaptability and familiarity of Western culture, English-speaking proficiency, lower cost, high quality telecommunications, and large pool of graduates. "The voice business is no more a viable option because of the cultural issues involved," agrees Deepak Patel, ceo of Aditya Birla Minacs, which has 35 centres across the world, including two in Manila.
Pradeep Udhas, head of IT-ITes at KPMG in India, says that rising wage inflation, declining quality of the talent pool and rising infrastructure cost have dimmed the lure of India as a bpo destination. "If the trend continues, it can have a massive impact on those employed in the sector, as well as people who see the BPO industry as a future employer," he adds. Recent reports say Vodafone is shifting 750 call centre jobs from Mumbai to Kingston in Australia, the largest BPO market in the Asia-Pacific.
Flight of jobs
Over the last five years, as many as 30 Indian bpo companies have set up operations in the Philippines alone, including Genpact, tcs (Tata Consultancy Services) bpo, Wipro, Convergys, wns Global Services, hcl and Infosys bpo. This is hurting jobs in India.
At the start of the slowdown, the Business Process Industry Association of India predicted 250,000 job losses in the first quarter of 2009 alone, something that was quickly contested by industry body Nasscom. No industry professional is willing to admit job losses, let alone put a number to it, although some of them agree in private that many jobs have indeed moved out.
Nasscom President Som Mittal, on the other hand, says more jobs are being added. "The it-bpo sector, in fact, added a net of 185,000 jobs in 2011-12, despite the slowdown," he claims. However, it is true that issues of poor infrastructure and transfer prices need to be addressed, he says, adding that young companies should be supported by the Government by helping them get loans at cheaper rates.
Many companies that set up captive outsourcing units or call centres to meet their own requirements in the last decade have either shut shop or sold their units to third-party service providers. In 2008, Citigroup sold its BPO arm, Citigroup Global Services, to tcs while its technology captive Citi Technology Services was sold to Wipro Technologies. Meanwhile, Adaptech's India technology centre was bought by HCL Technologies, and the aol (America Online) contact centre in India was taken over by the Essar-owned Aegis bpo. Apple and network communications firm BelAir Networks shut down their captive BPO operations in Bangalore in 2006.
Industry professionals say this makes good business sense for bpos. "Companies are essentially moving closer to their markets, which makes business sense for them," says Zensar's Natarajan. "In the process, they are also saving on cost, and giving a service more acceptable to clients, as is the case with operating from the Philippines." Also, many clients want to get voice work combined with non-voice analytics or accounting work. So, when non-voice work moves closer to the clients, voice follows. "it-BPO bundled deals, based on an Internet-enabled, multi-location global delivery model, are on the rise," says Nilanjan Chaudhuri, global leader, marketing and communications, Aditya Birla Minacs.
But the dampener in this global game plan, apart from high operating costs, is the phenomenal level of attrition in the industry. Attrition in the sector is a high 30 per cent a year, meaning 30 employees of every 100 would leave the company in a year, which drives up training costs.
Infosys BPO, for instance, which employs over 25,000 in multiple centres across India, the Philippines, China, Poland, Mexico and the US, spends 2.5 per cent of its $500 million annual revenues on training. Raghavendra K., its human resources head, says attrition has more to do with social factors than compensation. As much as 42 per cent of its staff are women, and those married tend to move along with their husbands when they get transferred. "Operating in the metros will become untenable due to the challenges of transport, rentals and emerging options before the youth today," he says.
Many BPO centres in Bangalore, which employ young men and women mostly in the age group of 25-30, find it difficult to retain them for more than a year. "I am not very particular about the money, as much as the satisfaction on the job," claims Kannada-speaking Sheik Neelufar Ali, 21, who switched jobs to a new centre as she liked to enjoy fewer hours of work compared to her previous employer. "I now have an eight-hour login," she says. It would not be surprising if Ali leaves her current job too, and takes up a non-voice career, which will give her higher pay of Rs 20,000 a month, more than twice what she earns now.
The silver lining
The traditional English-speaking voice business is moving out of the country but the domestic voice business, where clients in the telecom or insurance space are serviced in several Indian vernacular languages, is opening up new avenues to undergraduates. They earn Rs 8,000-9,000 a month in the city. With incentives, that could go up to Rs 15,000. "I have to pay Rs 4,000 a month on rent and food, but I manage to send around Rs 5,000 home," says Bangalore-based Arun J.K., 23, who hails from Pala, a sleepy hill town near Kottayam in Kerala. He handles 150-200 calls a day for a DTH client.
According to J. Satyanarayana, secretary, Department of Information Technology, although countries like the Philippines, China and Malaysia are gaining momentum as destinations for it-ites investments, "India's unique value proposition of a mature customer-focused industry, domain experience, large pool of talent and proven track record has ensured that the country remains at the centre stage of most global sourcing decisions."
Companies, meanwhile, are adopting various measures to counter the slump in business, including bundling of deals along with it for clients, rationalising workforce, using better technology and business management processes to give better quality and training to the workforce.
The industry is also increasingly hiring domain experts-lawyers, doctors, chartered accountants- along with technical graduates and postgraduates, so that work requiring greater specialisation can be taken up. Infosys bpo, for one, launched a Career for Life programme in 2008 to lower attrition rates, and tied up with 20 different universities to offer higher education to staff, a pursuit many quit their BOP jobs for earlier.
BPOs say they are in transformational mode, taking work to where clients want them to, especially in the non-voice business that rakes in higher margins. But will this transformation breathe new life into India's bpos and help lure those like Navad back into the sector? That remains the big question.