business process outsourcing as a global...

BUSINESS PROCESS OUTSOURCING AS A GLOBALPHENOMENON: A GLIMPSE OF SELECT COUNTRIESIN NORTH AND SOUTH

Dolly Sunny*

INTRODUCTION

Outsourcing is an activity wherein a firm or client enters into an agreement with a provider orvendor to perform an activity that was previously performed by the firm (Dutta and John, 2005)Outsourcing is not a new concept, particularly in the Indian context. It dates back to the age ofthe Ramayana, where Muni Vishwamitra, in the Ramayana, while performing AshwamedhaYagna, asked King Dasarath of Ayodhya to help him carry out his yagna in a peaceful manner.For this he requested the King to send Lord Rama and his brothers, or rather, outsourced securityto Lord Rama. Thus it has been around in different forms earlier, but the importance of it has notbeen felt as much as it is felt in today’s age of cut-throat competition. (Singh and Dutta, 2004).

Outsourcing is the delegation of tasks or jobs from internal production to an external entitysuch as a subcontractor. Most recently, it has come to mean the elimination of native staff tostaff overseas, where salaries are markedly lower. The concept started with Ross Perot when hefounded Electronic Data Systems in 1962. (www.outsourceking.com)

AN OVERVIEW OF BUSINESS PROCESS OUTSOURCING

Business Process outsourcing more and more takes the form of Offshore Outsourcing, wherewhole business processes including support and development are outsourced. The client is usuallyfree to choose who provides the outsourced business processes, while stock markets press thefirm to do more for less. This requires that managers search out the cheapest sources they canfind. In countries like India and China, firms like IBM, Microsoft, Hewlett Packard, and Novellchoose to get BPO business services from sub-contractors in these countries or movemany development and support jobs there. Smaller businesses can also take advantage offreelancing on the Internet to get smaller projects done by offshore developers at minimum cost.(http://www.24x7bpo.com/aboutbpo/bpobenefits.htm)

In short, off-shoring is the relocation of jobs within a firm to a lower-cost location on a longterm basis. For example, JP Morgan Chase has recently shifted some of its economic researchwork to Mumbai. So the firm is off-shoring its process to India. These firms that offshore areknown as captive processing centers or captive units. On the other hand, BPO is the contractingof jobs to a third-party firm either onshore but increasingly in offshore locations. Many call

* Professor, Department of Economics, University of Mumbai, Vidyanagari PO, Mumbai-98,([email protected], [email protected])

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centers in India are third party firms that provide services to foreign firms. There is also a thirdtype of off-shoring operation known as the Joint Venture (JV) model. In a JV, often called abuild, operate and transfer model, two entities own the operation. For instance in December1998, Satyam Computers entered into a JV with an affiliate of GE Industrial Systems. The JVfirm provided the GE affiliate with engineering design services, software development andsystem maintenance services.(www.BPOIndia.org).

In the corporate environment, the term “outsourcing” often refers to a particular type ofoutsourcing, business process outsourcing (BPO). BPO occurs when an organization turns overthe management of a particular business process such as accounting or payroll to a third partythat specializes in that process. The underlying theory is that the BPO firm can complete theprocess more efficiently, leaving the original firm free to concentrate on its core competency.Through the right mix of business process improvement, labor arbitrage and technologyenhancements, BPO is aimed at reducing cost, improving service levels and thus improving theenterprise value of the business processes. Blending qualified workforce with a faster adoptionof well-defined business processes leads to higher productivity gains without compromising onquality. (www.24x7bpo.com/aboutbpo/whatisbpo.htm)

Globalization, a process of economic, political, social and cultural integration is acceleratingthe transformation of the world into ‘Global Village’. The process is driven by an increasingdegree of liberalization of restrictions on the mobility of goods, services, capital and technologicalknowledge. Globalization is recognized as one of the most dynamic aspects of the corporatestrategy of both survival and success through expansion of business opportunities (Gupta, 1997).

While taking the years 2002 and 2003 together it can be stated that the last three quartershave registered a time of growth for the BPO segment. Smaller facilities and providers are onthe verge of being acquired and hence the consolidation trend has started to be the next strategyfor horizontal growth. However, the uniqueness of the BPO segment is the domain expertisethat each firm has developed, for instance, ICICI Onesource, for financial services and SpeedwingWorld network services, now known as WNS, for airline processes. (www.BPOIndia.org) Indiaexcels in delivery and service quality standards. Some of the BPO firms of India have emergedas benchmarks for newer facilities in Asia and the Southeast- Asian region. Indian BPO serviceproviders could plug the gaps in process efficiency. A large firm is skeptical to outsource itsbusiness process on the grounds that the service provider may not actually understand the businesscompletely, but this has been changing in the last 18 months. Again, consolidation is the key forthe continuation of this sentiment. Consolidation improves the knowledge base and learningcurve for newer processes, which would make the development of these newer processes fasterand more efficient. This is crucial, because most of the BPO contracts, which Indian BPO firmsget, are those with a high level of direct interaction with customers. A small foul-up would havea direct impact on the client’s business image. The similar kind of crash experienced by infamousdot com cannot be repeated in the case of BPO segment. (www.BPOIndia.org) The new breedof VC backed third-party BPO vendors in India has the best of the domain knowledge, mainlybecause the people who set up these are ex-employees in top IT-services firms with a strongcommand over IT-outsourcing concepts and industry requirements. Hence, they are able toplace themselves accurately in the value chain offering world class customer contact centersand back office processing services providing absolutely spot-on voice/data connectivity and

Business Process Outsourcing as a Global Phenomenon: A Glimpse of Select… 3

integrated services. (www.BPOIndia.org) Outsourcing implies loss of work from stategovernments of USA to Indian BPO firms. From a revenue point of view, these losses of contractsdo not adversely affect the BPO earnings as the proportions of such contracts are far lesser thancorporate BPO contracts. Although the bills proposed in the states of USA did not directly hintat the termination of offshore contracts, it placed a minimum wage requirement. The bills wantedgovernments of the respective states to pay American wages to the service providers, whichallegedly amount to about $ 6 USD an hour as against local wages which are far lower. Thismove indirectly hinted at the termination of offshore contracting. (www.BPOIndia.org) HoweverBPO and call center industries face certain challenges related to future growth. First, the issue ofinvestor sentiment. Secondly, Indian CEOs are detained in a foreign land for Visa irregularitiesand the unexpected L1 Visa restrictions. These hurdles will not affect the Information TechnologyEnabled Services( ITES) and BPOs. The ITES-BPO businesses is affected by the investorsentiment. In these situations, growth can still be sustained mainly because of the extensivedomain knowledge, the ability to lower costs and delivering quality services that India hasexcelled in. (www.BPOIndia.org).

WHY HAS BPO BECOME SO IMPORTANT?

BPO occurs when a firm turns over responsibility for an internal business process to an outsideservice provider. The customer will transfer the knowledge the customer uses to perform theprocess. The main IT processes outsourced to India are applications management like IT servicesITES, call centers and back office operations. It includes data conversion, data entry, insuranceclaims processing, medical transcription and data scanning, ITES.Firms are moving theirnon-core business processes to outsource providers. BPO saves precious management time andresources and allows focus while building upon core competencies. The number of functionsbeing outsourced is at an increase. Call centers apart, functions outsourced span purchasing anddisbursement, order entry, billing and collection, human resources administration, cash andinvestment management, tax compliance, internal audit, pay roll and the list gets longer day byday. In view of the accounting scandals in 2002 Enron, WorldCom and Xerox are keen onkeeping their investors happy by increasing their profits. BPO is one way of increasing theirprofits.BPO is the delegation of one or more IT-intensive business processes to an externalprovider that in turn owns, administers and manages the selected process based on defined andmeasurable performance criteria.

Reasons for the Popularity

The population of BPO is associated with factors such as factor cost advantage, superiorcompetency, utilization improvement, economy of scale and business risk mitigation.Theavailability of highly qualified skill pool and faster adoption of well-defined business processeslead to higher productivity gains without compromising on quality. Customers across verticalslike Insurance, Banking, Pharmaceuticals, Telecom, automotive and airlines, are seen to be theearly adopters of BPO. Among the verticals , insurance and banking are able to generate a bulkof the savings purely because of the large proportion of processes they can outsource like claimsprocessing, loans processing and client servicing through call centers. Improvement in cost,quality and productivity .These encouraged customers to accentuate their offshore operations.

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BPO and Shareholder Value

As customers have become more sophisticated, they have come to realize that the goal is to linkbusiness performance to shareholder value. BPO has gained prominence because of people’seagerness to attain business result. BPO is about optimizing business performance to drivevalue creation.

Executives want Shareholder Value from Investment

This is an important shift in management perspective to IT and shared services. They want toknow how the shared services and world-class processes are creating shareholder value for thefirm.

BPO has Emerged as a Repeatable Model for Reducing Costs while Increasing Service Quality

Businesses have worked for decades to use alliances to combine and leverage their uniqueskills and access to markets. The building of core functions, while outsourcing non-corefunctions, has moved from theory to practice. This trend has become increasingly important asglobalization expands the range of competitors and innovation rapidly raises the bar in manynon-core areas.

BPO is Often the Next Step after Shared Services

Firms that have centralized services and created a shared services organization have alreadyhandled some of the change management issues that arise from BPO.

Procurement-related Functions

Outsourcing procurement is particularly appealing to corporations with large decentralizedspending, where corporate controls mean little or nothing.

A Business Case for BPO Outsourcing can be made

Firms generally outsource processes to shift accountability and control costs. Management canthen focus on core areas, and not have its attention diverted to other areas. Outsourcing alsoallows firms to avoid capital expenditures, which is especially important in non-core areas thatmay need new systems. Generally, firms only want to spend money on core areas.Advancementsin the fields of industry, science and technology have resulted in considerable developmentsin the quality and quantity of various products, giving rise to tremendous competition in themarket. This competition has exerted great pressure on firms to maintain and increase thesale of their products or services for which they have to get in touch with as many people aspossible for telemarketing, tele-selling and to provide customer care services by resolving theirqueries. This need to satisfy customers to their fullest and keep them happy explains the conceptof customer care. As a part of Customer Relationship Management (CRM), call centers havebecome an effective medium to perform the above functions. Since most of the firms are usuallyengaged in their own important functions and setting up their own call centers involve hugeamount of money, they find it economical to get this work done by outsourcing (Student AidPublications, 2006).


OUTSOURCING IN DEVELOPED COUNTRIES IN A NUTSHELL

A brief introduction of outsourcing services in selected developed countries are narrated here.

United States

Outsourcing of services by US and European firms to India has been continuing for a decadenow, the new trend on the table on the table is Person-to-Person Offshoring (PPO). To makethings easier, there are about 100 websites that act as trading platforms for these services. Thesetasks do not require extensive infrastructure and people can work from their homes with abroad-brand connection and earn between $ 10 and $ 25 for an hour of work. Among the fastestgrowing segments in PPO market are writing services and online tutoring, which fetch $ 8 to $40 an hour. (DNA, 2007).

Neither outsourcing, the contracting of jobs to a third party or offshoring, the movement ofjobs within a firm to another country is the exporting of jobs both represent the importing ofservices. Over the past decade, there has been a steady rise increase in service imports in US.But the rise in service imports is still small in comparison to the export of services by the US.They currently run a large services surplus with the rest of the world. The more the US does tolimit the importation of services, the more difficult it will become to export them, which in turn,will destroy jobs. The most important benefit of importing services and international trade is theimprovement in productivity. In a competitive world, service providers must be productive inorder to survive. The US saw a dramatic improvement in productivity in the manufacturingsector in the later half of the 1990s as a result of the North American Free Trade Agreement(NAFTA). The NAFTA received stiff opposition, much like the opposition against outsourcingtoday. They are worried of American jobs rushing off to Mexico. However, US businessesbecame more competitive as a result of NAFTA and the US economy has added nearly 20million jobs since. After nearly two decades of stagnation, real wages rose smartly in the 1990sdue to expansion of trade. An increase in trade for services will have the same effect in thecoming decade that increased trade in goods had on the manufacturing sector in the 1990s.

Another benefit of international trade is the global expansion of wealth and spreading thebenefits of economic development. Trade generally takes place on the principle of ‘win-win’. InIndia, the sellers of services are also better off. Jobs are created and revenue is earned. Thewages of knowledge workers go up as businesses are forced to bid up the price of skilled workers.US businesses that export goods to India also benefit as the wealth of India grows. Easy todefine processes like back-office work and certain research related work is what will beoutsourced. The proportion of specialists in the US workforce has increased from 38 per cent in1983 to 74 per cent in 2002. However, there would be a certain section of high cost workers thatlose out in the sort run. Over here, job retaining and unemployment benefits can be made easilywith the benefits gained from outsourcing.

Forecasts by Evalueserve analysis indicate that the annual GDP growth of the US will be3.20 per cent which will lead to an increased demand for labour. However, the US will face adomestic labour shortfall of 5.6 million by 2010 due to an aging population, which can potentiallycost the US economy $ 2 trillion if appropriate measures are not taken well in time. Hence thereis a need for offshore activity to support the growth of the US economy. (www.BPOIndia.org)

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The US relies on India to fill many of its call center jobs whereas Western Europe is turningmore frequently these days to its own backyard like Prague, Poland, Hungary and Slovakia,transforming a few urban centers of the former Communist bloc into the Bangalores of Europe.Eastern Europe represents a fraction of the global outsourcing market. Highly educated,multilingual pool of talent in an increasingly affluent consumer market barely a stone’s throwfrom its prime clients which Bangalore cannot rival. It is also feeding a real estate boom in high-rise office space where despite high unemployment in much of Europe, western European firmsare pressed by labour shortages in several important occupations, encouraging them to turn totheir eastern neighbors to ease the strain. (Horejsi, 2007).

According to Alan Blinder free trade will make US suffer job loss in around two decadesand ignores the big gains that other economist emphasise from the same. Bhagwati says thattwo-way flows and three-way flows give rise to trade in variety and even if India and US havesame skilled workers it does not mean US is going to suffer but only means that US and Indiawill transact within the same industry. (Choudhary, 2007).

United Kingdom

The outcry in the UK over outsourcing of jobs to India has largely settled as unions haveunderstood that it would lead to efficiency of British firms resulting in more jobs as theworking condition in the city is very good. New opportunities in a few identified sectors likebio-technology, IT and ITeS, healthcare and agro processing. (The Free Press Journal, 2006).

Ireland

Ireland was one of the front runners in the BPO. It started much earlier than India. Thus it hasbuilt good brand equity in US. It has a very conducive regulatory framework and is known forexcellent quality standards. The country has strategically pursued the developing outsourcingservices market.

It however suffers from a serious disadvantage - that of a lack of a large human resourcepool. It also compares very poorly with India and China in terms of Manpower costs. Ireland isactually the biggest exporter of software services in the world today. But there is currently ashortage of programmers in Ireland and firms are forced to outsource work to India.

Australia

Australia has a mature BPO industry with 4000 call centers employing 225,000 people with US$ 5.7 billion revenue. It has the advantage of a large English speaking population with a favorabletime zone. Australia cannot be considered as a serious competitor to India as far as BPO activitiesare concerned.

Canada

Since only 5 per cent of total BPO business by year 2005 from US would be offshore amountingto US $ 7.5 billion, Canada and Eastern States could put severe pressure on India on the pricefront, besides being sought after for their near-shore capabilities by the US.

In short, BPO is a field in which several competitors exist. Countries such as Canada,Ireland and Australia have biggest advantage due to their similarity to the US in terms of peopleand culture.


RELEVANCE OF BPO IN DEVELOPING COUNTRIES

In this context, it would be appropriate to mention a few developing countries engaged in BPO.Philippines is a country which has an excellent telecom infrastructure built for the Americanneeds. China is seen as an important destination for IT offshoring, although language barriersdo exist. South Africa poses threat with its low real estate and labour costs. Malaysia is yetanother example. Kuala Lumpur is an emerging city, which ahs a Multi-Media Corridor withexcellent IT and communications infrastructure.

Pakistan

Pakistani BPO industry is at its nascent stage as compared to that of India’s. Thus, call centersin Pakistan are inviting Indian BPO experts to train their staff and hence the influx of Indianprofessionals to Pakistan is natural besides its share of problems like visa, work permit. Recently,there has been a major boom in outsourcing of voice-based call center services to Pakistan.Pakistan Software Export Board Limited (PSEBL) forecasts a 45 per cent growth in the PakistanBPO business in the coming years. (Anas, 2006) With this vast development in the BPO sector,opportunities go well beyond young graduates to housewives and even retired people. BPO isan ideal place to make a quick buck. There is no better way to make money and gain workexperience before embarking on ambitious goals. BPOs not only mean call center jobs but alsoback-office processing, research and transaction processing for clients in all sectors. BPOs havebeen going up the value chain to embrace a host of Knowledge Process Outsourcing (KPO) jobsfor US clients including legal real estate outsourcing, medical and even Sarbanes-Oxley workwhich forces firms to improve corporate governance, including financial reporting standardsand so on. These businesses and expanding operations have sent BPOs on a hiring spree. Thereis no specific educational qualification that would be required for a job in the BPO sector exceptfor proficiency in English language (Nandini, 2006).

China

China has been promoting its outsourcing sector to rival that of market leader, India. Chineseprovinces are vying with each other in offering foreign firms favourable policies and tax breaksto set up call centers and offices. The ministry also predicted China’s market for software andinformation services would reach one trillion yuan by 2010. According to the forecast made byElectronic Data Systems (EDS), outsourcing services could generate $ 56 billion in revenue andcreate four million jobs by 2015, becoming a new engine for China’s economic growth (TheFinancial Express, 2007). In the outsourcing field, China is the biggest challenge in the futureand the largest threat to India.

With the largest population and fastest economic growth, China has at least two strengths inthe global outsourcing market: manufacturing and IT. The Chinese workers cost about 15 percent less than equally qualified Indians. Further, China is likely to grow through the Japaneseoutsourcing route. The advantages that Chiba has are its proximity to Japan and a similarity ofthe languages. India currently offers almost no BPO services in Japan. Western manufacturingfirms have found that outsourcing their manufacturing function to China for their firms’ globaloperation can be profitable and also of good quality.

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However, India has a better image as a quality supplier, mostly due to its record of betterquality software than China. Lack of proficiency in English is the biggest drawback of China. Ithas a very small proportion of the population speaking fluent English.

Philippines

In the Philippines, the manpower costs are 60 to 80 per cent lower as compared to UK and US.The average salary cost is around $ 700-800 per month in the BPO sector. The country has ashortage of manpower, mainly due to the small population as compared to India. The manpowerbase for BPO is only 300,000. Right now the country is getting business from nearly 70 firmsemploying more than 12, 000 people with revenues of US $ 250 million.

The following points narrate the advantages of Philippines in this regard.

The Philippine government has initiated a number of policies by which the skills can beprovided to a larger population. As a former American colony, the American culture and languageis widely emulated here. These cultural and communications skills could prove to be so appealingto American firms that they would outweigh slightly higher labour costs in the Philippines.Philippines has a low graduate turnout of only 400,000 per annum, which is very low whencompared to India. India has consistently delivered very high quality in Software and has builta very high reputation in it. Moreover, after the WTC bombing, terrorism has become a veryimportant issue for the US firms in particular and they want that the BPO providers should havemulti location facilities which can be used in case of any terrorist attack.

Africa

In the continent of Africa, Nairobi is the upcoming hub for setting up BPOs as it has all theingredients for doing the same. Kenyan entrepreneurs hope that cheap labour, clear accents andcustomer fatigue with Indian call centers could help the African country hook into the burgeoningcall center and outsourcing industry worth $ 130 billion worldwide. The only hurdle that Kenyafaces is technology. No matter how clear the Kenyan accent, the irritation of an echo on the lineis bad for business which is due to the dependence on an outdated satellite system. (Nyamburaand Mwaura, 2007).

India

The research arm of global think tank Everest Group belonging to Everest Research Institutedeclares that Indian BPOs give tough time to global majors and another study reveals that IndianBPOs are now leading the offshoring movement worldwide and as they do so more and more ofthem are becoming mainstream ones. The India-centric BPO suppliers in particular have gaineda lot of credibility in the global market in the last few years and are now regularly competingand even winning against traditional global majors and also the entire Indian BPO supplierlandscape identified 11 suppliers who established themselves in the international market throughcost-efficiency and process and industry expertise which include players like EXL, WNS, IBMDaksh, Genpact, TCS and so on. A particular firm to be included in this list, it has to beheadquartered in India or have a majority of its workforce in India and they are expected to havea revenue of more than $ 100 million or more than 10,000 employees. With maturity, IndianBPOs are also developing capabilities to move beyond the low cost provider model and becoming


end-to-end process owners. As for the future, the KPOs are expected to grow rapidly bycannibalizing some of the onshore work and creating new demand for their services. The demandfor the services provided by Indian BPOs is expected to grow and now it is in the hands of thesuppliers to manage the risks and challenges and take advantage of this opportunity. (Sachdevaand Dutta, 2007).

GLOBAL MAJORS IN BPO IN INDIA

The Citigroup has shortlisted seven firms, including IBM Global Services and a Bangalore-based software services firm as potential buyers for its offshore services arm in India. Theshortlist was arrived after screening over 30 suitors that included private equity investors, hedgefunds, buyout funds, overseas and Indian firms. In addition to this the US-based Citigroup haddecided to put its captive BPO arm in India on the block. Citibank had expected to offload asubstantial stake in the BPO arm rather than entirely selling out the business due to which it willbe able to continue doing business with its offshore arm as before. Citigroup selling out its BPOarm, added to the trend of large multinationals selling out of their captive units in India.(The Times of India, Mumbai, 2007).

Triggers for offshoring business processes to developing countries have two reasonsnamely, cost savings and promise of acceptable and better quality. These demographic issueshelp to contextualize the research, more salient to our interest but however emerging debateson the cultural dimensions of offshoring and particularly implications for worker’s sense ofcultural identity. The economy is as precarious, linking it to the increasing instability of workers.Thus an analysis can be made where workers lead a double life- an authentic, Indian daytimelife and phoney western night-time life. Ramesh (2004). McMillan (2006) points to theroutinisation of work, the emotional labour that dealing with customers inevitably involvesthe most particularly the cultural transformations that Indians need to undergo to get theirjobs done. At the outset of migrating to Mumbai, customers were likewise very antagonisticand respondents spoke at length about their refusal to speak to Indian representatives, anissue which has been well documented in the UK and Indian press. Acutely aware of thisantipathy, Indian respondents spoke of the tension they experienced at the time, as theyattempted to assuage their colleagues and deal with customers wariness and animosity. Thelevel of empathy expressed where the Indian respondents deny that these attitudes were racistand possess a view that dealing with this fallout is a part of their job. There was some culturaldifference where permeating respondents description about their organization as one anotherwere references to cultural difference. It become apparent that respondents were using thisterm to explain and sometimes legitimize attitudes towards work was a consensus across thedata set that Indian and British employees embraced very different work ethics. It could beargued that this cultural explanation was being used as a justification for exploitation. (Cohenand El-Sawad, 2007).

Offloading of non-core work to specialists has been the main driver for the business-processoutsourcing industry to grow 10 per cent a year to $ 618 billion by 2010. Hiring engineers,doctors and statisticians a client firm has considered to be integral to its main business. Ifoutsourcing becomes as widespread in services as it already is manufacturing, Western economiesgrow strongly due to surging profits. (Rangarajan, 2007).

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For now India is the clear market leader with its experience of more than 20 years in theoutsourcing industry and it has the main stake of the global outsourcing volume at present. ButIndia’s period of competitive advantage may by changing rapidly as local salaries in India arerising at 20 per cent annually which provides a picture where outsourcing to India will be reduceddramatically within a decade as other countries mature and prepare to enter the global economy.Overall, there are rising costs, political risk favour and strategic prudence diversification ofoutsourcing locations. India is dependent on China for low-cost outsourcing. Accent has been amajor drawback due to which a large number of US firms pulled outsourcing of customer relationsjobs from India and moved them back to the US or Canada. Chinese firms will be creating majornew market opportunities in the next few years by strategically acquiring business outsourcingfirms. The challenge for China’s growth will be business domain expertise and huge languageand cultural barriers. (Venkatesan, 2007).

Cultural misunderstandings and concerns over the quality of service from offshore callcenters are forcing firms to rethink their strategies. Over the past few months a number ofbanks, financial services and utility firms have repatriated their call center services to the UKfrom India. But a few banks like Royal Bank of Scotland, Lloyds TSB and so on declared thatthey would follow what the market leads and hence not shift their base overseas. Despitesignificant government support and huge level of visibility on the global arena, China’s offshoremarket has not taken off as expected and still has a long way to become potential alternative toIndia. Multinational firms considering China as a quick-fix solution to deal with rising costs andhigh attrition of employees in other offshore locations like India are sorely disappointed by thecountry’s slowing offshore momentum. China should encourage its local firms to focus on areaslike testing, data management and product development services instead of areas like applicationdevelopment and management where India clearly dominates. Chinese firms also needs toimplement strict intellectual property controls and undertake training programmes. (The FreePress Journal, 2007) Lloyds TSB Union Group later claimed that 400,000 customers had signeda petition against their financial services being handled abroad and that Mumbai had been adisaster due to customer dissatisfaction. The number of overflow calls going into Mumbai hasbeen steadily reducing and it has now got the point that all calls are being comfortably handledby the UK staff. (in.news.yahoo.com, 2007) China being at an early stage the BPO cycle hasless severe problems. In India BPO industries are based in Tier I cities whereas in China it islocated in Tier II cities. (Venkatesan, 2007) Revamp of intellectual property rights India wascruising imperiously ahead of China in the innovation race and this was due to its low-costoutsourcing opportunities for foreign businesses. (Lakshman, 2006) China offers a whole packageof incentives to attract industry leaders: allowing wholly owned foreign entities, creating over500 science parks, offering tax breaks which has led Google, Microsoft and Apple to shift theiroutsourcing focus from India to China. China’s outsourcing ambitions are backed by a healthydose of central planning. Under the Sixth Five Year Plan, China aims to build service outsourcingbases in 10 cities, encourage 100 multinationals to outsource services from China and foster1000 large and medium-sized service outsourcing enterprises. Where China is introducingsignificant tax incentives and other benefits, Indian policy initiatives have gone the other waythat is towards increasing taxes. The thousands of smaller firms possess a very high attrition ratewhich calls for some order with respect to dropping out of jobs. If India wakes up to this threat


of China it would compete effectively and if it does not then eventually it will cede itsleadership in the global service market which will be a catastrophe for the Indian economy.(Venkatesan, 2007).

IBM and Wipro have grown in the BPO space through acquisitions. IBM acquired Daksh in2004 and Wipro acquired Raman Roy’s start-up Spectramind in 2002. Since then both haveramped up rapidly and currently the BPO division accounts for close to half of their respectiveemployee base. These two firms may be driven by different reasons for hiving off their BPOdivisions. (Horejsi, 2007). Nipuna Services Ltd the then BPO arm of the then Satyam Computerwas preparing for a buyout in the healthcare and banking, financial services and insurance(BFSI) segments due to which the employment rate of Satyam which was then 3000 would havebeen doubled by now. (Pantala, 2007). To conclude, though globalization is important, it is stilla weakling compared to the domestic economy. The antidote to job loss is job creation, whichdepends largely on national economic policies. About 5 per cent of job losses resulted fromoffshoring, others involved bankruptcies, downsizing, domestic outsourcing and firings aftermergers. Offshoring does not measure the full impact of globalization on US labour markets.That effect would also include trade and investment by multinational firms. Still with theunemployment rate at 4.5 per cent it is clear that globalization has not crippled the US jobmachine. Offshoring involves more than just changing phone numbers and switching computerhookups. Cross-border differences of culture are language 80 per cent, lack of skills offshoring49 per cent and customer complaints 49 per cent. If countries run by trade surpluses fromoffshoring, the currencies would rise which would reduce their cost advantage. It is easy toblame all our economic anxieties and problems on globalization because that makes foreignersand multinational firms responsible. (Samuelson, 2007).

INDIA’S LEADERSHIP IN BPO

Robust communication infrastructure, a large English–speaking workforce, low labour costs,an appropriate time-zone difference with the West and the brand equity built by the softwareservices sector constitute compelling reasons for choosing India as the BPO destination. Despitecompetition, India emerged as the dominant offshore BPO and HRO provider.

Reasons for India’s Prominence

India’s BPO prominence is based on several factors: primarily it is due to the fact that India ledin offshore IT services for applications development, maintenance, support, upgrades and staffaugmentation. Secondly, India’s client relationships through its Y2K conversion work withNorth American and European vendors and Global organizations. Thirdly, BPO back-officeprocesses leverage India’s labour cost advantages and skills in call centers, accounts receivableas well as payable, customer billing, claims administration. Lastly, India benefited from themarketing buzz of favorable reports by NASSCOM, Gartner Group, International DataCorporation (IDC), McKinsey and Firm and PricewaterhouseCoopers.

Predictions that Indian offshore BPO would grow to $ 20 billion by 2008, helped the numberof Indian providers explode. But many of the success stories are captive back-office servicecenters, which are owned and managed by multinationals that have the process expertise,in-house demand and the patience to support major investments and multi-year transitions.

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These market pioneers have seen dramatic cost savings of 40 to 50 per cent and quality thatmeets or beats industry benchmarks. For example, GE has 15, 000 back-office employees inIndia. Now many multinationals hope to establish similar captive service centers in India. Somewant Indian providers to build and manage BPO centers, then transfer the BPO operations backto the firm something called off-shoring.

COMPARING INDIA WITH OTHER BPO DESTINATIONS

The abundant skilled manpower has made India a target destination for multinationals to backend their operations in India. India ranks high in areas such as qualifications, capabilities, qualityof work, linguistic capabilities and work ethics and thus is ahead of competitors such as China,Philippines, Ireland, Australia, Canada, and so on. Indian firms have unique capabilities andsystems to set; measure and monitor quality targets.

In specific BPO categories, Indian centers have achieved higher productivity levelsfor example, the number of transactions per hour for back office processing, than theirwestern counterparts. Also, India is able to offer a 24*7 service and reduction in turnaroundtimes by leveraging time zone differences. India’s unique geographic positioningmakes this possible. Many state governments in India are offering incentives and infrastructureto set up.

About 100,000 engineers graduate from India every year. Many of these engineers areemployed with call centers for troubleshooting and providing technical support at salaries thatare dramatically lower compared to the pay scales in the US. The average monthly salary inIndia is $ 400-700 compared to $ 2700-2800 in the US. (www.BPOIndia.org).

BUSINESS PROCESS OUTSOURCING LOCATIONS IN INDIA

India, being the major outsourcing destination, the IT city Bangalore seems to be a hot destinationfor BPOs, swiftly followed by similar technologically advanced cities like Chennai, Hyderabad,Mumbai, Delhi, Kolkata and Pune. India has a booming $ 2.3 billion ITES market. Allthese cities are technologically advanced and have a good infrastructure, with almost 278quality-certified BPO vendors. With the growth of the industry, there has been a sharp increasein the outsourcing job opportunities in India, which many believe would help India improve itseconomic and social stability in a major way.

According to Boston Consulting Group the number of jobs in India, due to outsourcing, isabout to touch 30 million by 2020 and with more and more firms and entrepreneurs setting upBPO operations in India, that estimate seems to be a potential reality. Ultimately, the fact is thatoutsourcing as a phenomenon is to seen as nothing but an evolution that is revolutionizing oursocieties and laying the foundation for a better world economy. Many experts are of the opinionthat software development outsourcing and other ITES outsourcing will only help improve theUS and UK economies. Thus, outsourcing has moved from a niche technology managementtool to a mainstream strategic weapon (Kapila Raj and Uma Kapila, 2006). Belt, Richardsonand Webster (2000) agree that call centers are not an industry as the term is generally defined,but rather represent certain ways of delivering various services using the telephone and computertechnologies across traditional industry boundaries.


Diagram 1Sectoral Division of BPO

Source: BPO sector Outlook, facts about BPO Industry.mht

Table 1BPO Market Break-up by Industry

Sector Percentage

Financial Services: 17 per centCommunication (Telecom): 16 per centConsumer Goods/ Services: 15 per centManufacturing: 9 per centInformation Technology: 43 per cent

Source: BPO sector Outlook, facts about BPO industry.mht

Table 2BPO Market Break-up by Geography

Sector Percentage

United States: 59 per centEurope: 27 per centAsia-Pacific (including Japan): 9 per centOthers: 5 per cent

Source: BPO sector Outlook, facts about BPO industry.mht)

As observed above, the BPO Market is divided with respect to industry. It can also bedivided on the basis of geographical differences, which proves that the average annual salaryoffered to Indian graduates is US $ 2,400 which is lower than the salaries offered to graduates in

14 IJRQOM

any other country, namely Philippines and Ireland. The global outsourcing market isexpected to reach $310 billion by 2008, i.e. an annual growth rate of 14 per cent approximately.It costs approximately less than US $ 7,500 per year to hire a call center agent in India, which ismuch less than the cost in other countries, like US and Australia. Six million jobs are expectedby 2015.

CONCLUSION

India has the talent and ability to become an outsourcing destination for a wide variety of services.These services range from customer interaction services such as call centers and transcription toback office operations such as data processing, insurance claim processing, payroll processingand data entry as well as pharmaceutical outsourcing. The abundant skilled manpower has madeIndia a target destination for multinationals to back end their operations in India. India rankshigh in areas such as qualifications, capabilities, quality of work, linguistic capabilities andwork ethics and thus is ahead of competitors such as China, Philippines, Ireland, Australia,Canada, and so on. Indian firms have unique capabilities and systems to set; measure and monitorquality targets. For now India is the clear market leader as it has a 20 year head start in theoutsourcing industry and it has the main stake of the global outsourcing volume at present. ButIndia’s period of competitive advantage may be changing rapidly as local salaries in India arerising at 20 per cent annually which provides a picture where outsourcing to India will be reduceddramatically within a decade as other countries mature and prepare to enter the global economy.Overall, there are rising costs, political risk favour and strategic prudence diversification ofoutsourcing locations. (Source: BPO sector Outlook, facts about BPO industry.mht)

References

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