How BPO is changing India

Business process outsourcing is about the biggest opportunity that has come India's way and has the potential to transform India in a manner which is not yet fully realised.

It took software 25 years to achieve a people strength of 500,000; in BPO people strength has in five years already surpassed 100,000 and will employ well over a million in a little over five years.

This will be made possible by the fact that only 5 per cent of the processes which can be globally outsourced are now being outsourced.

Therefore Nasscom has set a target for India to raise its market share of the global BPO business from the current 2 per cent to 4.8 per cent by 2008.

By then Indian export earnings from BPO will likely reach an annual $ 21 to 24 billion.

Two simple questions arise. One, is India doing all it takes to convert targets and 'likely' projections into achieved realities and two, how will the country have changed by the time that goal is achieved?

The first good news is that as far as the government is concerned, barring little hiccups like the brief spectre of a service tax hanging over the industry, the government is doing all it can to help achieve the goals.

What is more, the decline in central regulation of business and industry has shifted focus to the state governments from who come more good news.

Foreign participants at the recent Nasscom BPO summit in Bangalore widely commented on the knowledgeable manner in which government representatives conducted themselves.

They contrasted this with the way politicians in the region often had difficulty pronouncing IT related terms while reading out prepared texts at such gatherings.

Governments of Indian states leading in BPO are at the opposite end of the spectrum from the traditional image of government and governance in developing countries.

B Inamdar, Karnataka's IT minister, told the gathering: We will accept whatever your recommendations are and adapt our policy to the changing times.

The state's IT secretary, Vivek Kulkarni, announced  the state's decision to introduce a new test designed by its Board for IT Education Standards, to assess beginners in BPO skills so that the cost and hassle faced by BPO companies in recruiting beginners was reduced.

And the Union information technology secretary, Rajiva Ratna Shah, was hectoring the industry to take data protection seriously and saying a committee was already working on a new law to ensure data protection.

So goodbye to the image of government in India being a spoilsport and taking long to act and facilitate. Enter government a la Asian Tigers when it comes to BPO.

The industry on its own is changing life around it. Prakash Gurbaxani, CEO of TransWorks, has a solution for the smaller Indian companies facing the terribly high staff turnover plaguing the Indian industry.

They should go to the B class cities where the captive centres of MNCs will not go, prone as they are to setting up their facilities near international airports!

With time this is likely to be a trend, taking the development associated with creation of such white collar jobs away from metros and making the economic impact of the industry more broadbased.

Within metros, large call centres employing hundreds have created their own demand for services like transportation and catering. One Bangalore bandh over Cauvery waters sent shock waves through the industry (a call centre should normally never close down), bringing forth so many queries from clients that chances are the political class will in future decide never to have bandhs.

BPO thus has a lot going for it and is growing at a phenomenal pace (over 50 per cent a year), but that does not mean it is a cake walk for the Indian industry. Even before the industry has got going properly, it is faced with the spectre of commoditisation.

Most of the Indian offerings are concentrated at the call handling end of the industry and facing intense price competition, with prospects of more such competition emerging from other geographies.

At the summit several speakers dwelt on this theme, and a presentation by McKinsey chalked out what the end game must look like if Indian BPO is to fulfil all the promises it holds and for which governments are doing all they can.

Most Indian players are concentrated at the activity and task based end, with only a few undertaking one or two end to end processes. They are all replicating the operations of their clients.

They have to graduate to handling multiple processes and deliver it with platform-based solutions and, at the highest end, insight-led customer solutions. The present Indian position is not sustainable.

The current volume and price competition play has to give way to discovering niches and processes in which companies can excel in, says Avinash Vashistha, managing director of NeoIT, an offshore consultancy.

He draws a historical parallel with IT services in which at one time it was a price competition play between undifferentiated offerors of on site services (body shopping). Only those small and medium players which cultivated niche capabilities delivered off shore survived.

Companies have to graduate from performing individual tasks to handling an entire process and then several processes in verticals. Today the play is doing whatever is easy to do and ramp up quickly.

On the one hand there are companies like EXL and eFund, which have acquired some process skills, on the other hand there are large players like Daksh and Spectramind which lead in the call centre volume game.

There is some traction in size but sooner, rather than later, attention has to shift to transaction processing. That's where the future is but the big boys are mostly not in it.

BPO has thus changed the Indian paradigm. The future rests not in the hands of governments, which are doing all the facilitating they can, but companies. If India has to keep winning in BPO then it is India Inc. which has to get its strategy right.