Beginning of the end? (20-08-2006)
No, if Indian BPOs bank on brain power rather than fluency in English
The back office boom that made India a global front-runner is back in the news, but for all the wrong reasons. In recent years, as the business process outsourcing industry shot up, up and away, it made the world sit up and notice 'the India story', added thousands of crores to our kitty, raised the nation's growth rate and changed the way hundreds of thousands lived. But all that seems to be unravelling.
The BPO sector-that went beyond mere call centres, medical transcription and customer relations for companies in the west to encompass e-business, design, legal services, and research and analysis-is facing its biggest crisis ever. Doomsayers predict it is the beginning of the end of Indian business's biggest success story.
It has been a cruel summer so far for the BPO industry, as news of clients cancelling outsourcing deals to India kept breaking with alarming regularity. If that was not bad enough, more incidents of data fraud have put a question mark on the security of businesses transacted in the country. And the primary reason for outsourcing work to India-cheap labour-does not hold true any more. The last nail in the coffin: India just does not have the personnel with the right qualifications and skills. In June, when British energy giant Powergen announced that it was cancelling its outsourcing contract to leading call centre Vertex, it shook the sector. Powergen was Vertex's biggest client, accounting for almost half its business and around 1,500 staffers.
But what really sent shivers down the collective BPO spine was a statement by Nick Horler, the company's managing director. Horler said cost savings in India were not compensation enough for the loss of quality; he felt Powergen's 6 million customers would be better looked after by a call centre in the UK itself. Vertex, which is reportedly facing trouble with British company Trainline, too, is struggling to brave it out. (For over two weeks, Vertex did not respond to a list of questions sent by THE WEEK as its top brass was 'still travelling', according to its spokesperson.)
This is not a one-off incident. With the focus of western companies shifting from frugality to quality of service, Powergen has company. UK's Abbey has announced a review of its outsourcing deals to India, while companies which have withdrawn from India recently include Apple Computers, Barclays and Lloyd's TSB. Last year, British Bank announced a hi-tech 600-seat call centre in Bangalore, but it never happened.
"If vendors and customers believe they are going to keep all their customers for life, they are naive," says James Abraham, director of Boston Consulting Group in Gurgaon. He feels incidents of clients cancelling contracts will increase in the coming days, but should be considered as normal in any business. Sandeep Bidani, HR head of Colt Telecom, feels it is actually the quality of services and issues like data theft that make or break a BPO.
While resistance to Indian back offices was at its shrillest during the US presidential elections two years ago, the events of the past few weeks are graver. Says Sanjiv Tandon, director of operations and head of corporate affairs, Xansa India: "Reactions will probably continue to increase, because the sector is growing and increasing in visibility."
Abraham feels that the issue is still simmering in corporate boardrooms in the west though it may not be so public. Pawan Bagai, vice-president of EXL, one of the top third-party BPOs in India, says trade unions in the UK are stronger than in the US. "They have been fomenting public opinion, leading to companies deciding that increased cost is better than alienating customers," he says.
This is only one of the woes that have beset the industry. Incidents of data theft and fraud, too, keep piling up. The latest was the arrest of an employee at HSBC's India Development Centre in Bangalore a few weeks ago (see accompanying story) for leaking personal and debit card information of more than 20 British customers to a ring of fraudsters with alleged connections to Islamic terror networks. The group made off with Rs 1.74 crore.
The National Association of Software and Service Companies reacted strongly last year when the British tabloid Sun and the Australian Broadcasting Corporation exposed the sale of personal information by unscrupulous call centre workers in India. But industry response was muted when three former employees of Pune-based software company Mphasis's BPO arm Msource were arrested for allegedly stealing the equivalent of Rs 1.5 crore from four customers of its client Citibank.
"Such negative incidents definitely affect BPO employees like us," says 24-year-old Aditaya Kumar Singh, or 'Addy', who worked at Vertex in Gurgaon until recently. "Powergen had just renewed the contract last year for another seven years. Everyone was confident. Then, they suddenly called it off. I talked to my former colleagues, and many of them are worried, though Vertex did not fire anyone and redeployed all those who were working on the Powergen processes."
Addy says that is no consolation because "even bigger companies fire employees when a project is cancelled". He refers to a recent incident when the BPO arm of one of the leading software companies in Bangalore fired all employees working on a project in its Mumbai wing when its foreign client cancelled the project. "In this field, everyone is worried from the day they join a company. There is no guarantee at all," says Addy, who now works at Intelenet, a third-party BPO in Mumbai.
Add to that the recurring complaints of employee ill-treatment. The V.V. Giri National Institute of Labour shocked the industry a few months ago with its report on the status of staffers at call centres. The report compared them to 'nineteenth century prisons or Roman slave ships'. Around then, the International Labour Organisation slammed the environmental conditions in call centres. "[In BPOs] indoor environmental conditions are indecent, hazardous, and, in 90 per cent of the cases, lead to air problems," said ILO spokesperson Ingrid Christensen.
If the present is imperfect, the future, too, does not look all that rosy. The sector growth rate has plummeted from 48 per cent a year to 35 per cent. US technology research major Forrester said last month that the growth rate would go down further to 28 per cent in the coming year.
Another report, by Chicago consulting firm Diamond Cluster International, predicts that the BPO boom is over for India as companies learn to be more strategic. It says India's BPO hubs like Bangalore and Chennai have reached labour saturation, and that the shortage will see outsourcers shift towards China.
The study also claims that US-based companies are ignoring cost issues to outsource to neighbouring Canada, because of proximity and similarities in language and culture. The really worrying part of this survey: 75 per cent of the respondents are companies currently outsourcing to India.
Nasscom and BPO majors have closed in to take on the crisis, though their strategy to fight the backlash has been mostly bluster. "These are decisions of individual companies; it does not change the overall attractiveness of India," says Nasscom president Kiran Karnik. He says that inspectors of UK's Banking Code Standards Board had scrutinised Indian call centres and found the security and data privacy standards to be exemplary.
The reaction to the issue is insipid, say many industry analysts. With increasing incidents of fraud by call centre workers, Nasscom's response has not been to ensure accountability and get stringent laws passed by the government, but a voluntary initiative called National Skills Registry. The registry is a database of third-party verified IT professionals. However, only around 30 companies have joined the registry, while the BPO outfits alone number over 400. "Is there really a concerted effort to make erring staffers accountable?" asks Bidani of Colt Telecom. "A lot of it is eyewash because the cost of background vetting is prohibitive."
Cost-effectiveness, too, no longer applies to Indian BPOs. The cost of living in Indian cities like Bangalore and Delhi has shot up dramatically, as living standards and expenses have increased, partly fuelled by BPO professionals themselves. With high rates of attrition and demand for skilled labour intensifying, salaries, too, have gone up at BPOs, reducing their cost advantage.
"With the emergence of alternative low-cost destinations, this argument will wear thin," says B. Sathya Seelan, vice-president (HR) of Chennai's Allsec Technologies. Emerging markets like the Philippines, Malaysia, Vietnam and Eastern European countries like the Czech Republic and Poland are gearing up to grab more of the lucrative global BPO pie.
In that challenge could well lie a way out of the present gloom. "India's competitive advantage is not that we can speak English or cost effectiveness; it is brain power that we should capitalise on," says Bagai of EXL. Agrees Anshumali Saxena, AVP (business development), EMR Technology Ventures: "Eventually call centres will go to [countries like] the Philippines and Bangladesh. Jaane do. India will scale up to knowledge processes. This constant scaling up is a business reality. You never thought of equity research five years back. Now, so many BPOs have scaled up to it."
But that also means the availability of highly skilled personnel. The present trend of catching youngsters may not work. Firms like Progeon, the BPO arm of Infosys, are reportedly taking in unskilled youngsters one or two years younger than the average industry age and training them. The Call Centre Association of India recently launched eKaliber, a project to train class 12 students for a BPO career. One solution, which could also neutralise the complaints about quality of service, would be to treat BPO as a mature, demanding business and rid it of the 'fun place to work' bait used to lure uncomprehending youngsters.
"As the business scales up and there is a shortage of skilled labour, maybe we should look at older people, like retired bank professionals and business executives, who are competent enough to stay ahead of the growing needs of customers," says Abraham. Perhaps grey hair and worry lines are just what are needed for BPOs to get over their existential crisis.
No, if Indian BPOs bank on brain power rather than fluency in English
The back office boom that made India a global front-runner is back in the news, but for all the wrong reasons. In recent years, as the business process outsourcing industry shot up, up and away, it made the world sit up and notice 'the India story', added thousands of crores to our kitty, raised the nation's growth rate and changed the way hundreds of thousands lived. But all that seems to be unravelling.
The BPO sector-that went beyond mere call centres, medical transcription and customer relations for companies in the west to encompass e-business, design, legal services, and research and analysis-is facing its biggest crisis ever. Doomsayers predict it is the beginning of the end of Indian business's biggest success story.
It has been a cruel summer so far for the BPO industry, as news of clients cancelling outsourcing deals to India kept breaking with alarming regularity. If that was not bad enough, more incidents of data fraud have put a question mark on the security of businesses transacted in the country. And the primary reason for outsourcing work to India-cheap labour-does not hold true any more. The last nail in the coffin: India just does not have the personnel with the right qualifications and skills. In June, when British energy giant Powergen announced that it was cancelling its outsourcing contract to leading call centre Vertex, it shook the sector. Powergen was Vertex's biggest client, accounting for almost half its business and around 1,500 staffers.
But what really sent shivers down the collective BPO spine was a statement by Nick Horler, the company's managing director. Horler said cost savings in India were not compensation enough for the loss of quality; he felt Powergen's 6 million customers would be better looked after by a call centre in the UK itself. Vertex, which is reportedly facing trouble with British company Trainline, too, is struggling to brave it out. (For over two weeks, Vertex did not respond to a list of questions sent by THE WEEK as its top brass was 'still travelling', according to its spokesperson.)
This is not a one-off incident. With the focus of western companies shifting from frugality to quality of service, Powergen has company. UK's Abbey has announced a review of its outsourcing deals to India, while companies which have withdrawn from India recently include Apple Computers, Barclays and Lloyd's TSB. Last year, British Bank announced a hi-tech 600-seat call centre in Bangalore, but it never happened.
"If vendors and customers believe they are going to keep all their customers for life, they are naive," says James Abraham, director of Boston Consulting Group in Gurgaon. He feels incidents of clients cancelling contracts will increase in the coming days, but should be considered as normal in any business. Sandeep Bidani, HR head of Colt Telecom, feels it is actually the quality of services and issues like data theft that make or break a BPO.
While resistance to Indian back offices was at its shrillest during the US presidential elections two years ago, the events of the past few weeks are graver. Says Sanjiv Tandon, director of operations and head of corporate affairs, Xansa India: "Reactions will probably continue to increase, because the sector is growing and increasing in visibility."
Abraham feels that the issue is still simmering in corporate boardrooms in the west though it may not be so public. Pawan Bagai, vice-president of EXL, one of the top third-party BPOs in India, says trade unions in the UK are stronger than in the US. "They have been fomenting public opinion, leading to companies deciding that increased cost is better than alienating customers," he says.
This is only one of the woes that have beset the industry. Incidents of data theft and fraud, too, keep piling up. The latest was the arrest of an employee at HSBC's India Development Centre in Bangalore a few weeks ago (see accompanying story) for leaking personal and debit card information of more than 20 British customers to a ring of fraudsters with alleged connections to Islamic terror networks. The group made off with Rs 1.74 crore.
The National Association of Software and Service Companies reacted strongly last year when the British tabloid Sun and the Australian Broadcasting Corporation exposed the sale of personal information by unscrupulous call centre workers in India. But industry response was muted when three former employees of Pune-based software company Mphasis's BPO arm Msource were arrested for allegedly stealing the equivalent of Rs 1.5 crore from four customers of its client Citibank.
"Such negative incidents definitely affect BPO employees like us," says 24-year-old Aditaya Kumar Singh, or 'Addy', who worked at Vertex in Gurgaon until recently. "Powergen had just renewed the contract last year for another seven years. Everyone was confident. Then, they suddenly called it off. I talked to my former colleagues, and many of them are worried, though Vertex did not fire anyone and redeployed all those who were working on the Powergen processes."
Addy says that is no consolation because "even bigger companies fire employees when a project is cancelled". He refers to a recent incident when the BPO arm of one of the leading software companies in Bangalore fired all employees working on a project in its Mumbai wing when its foreign client cancelled the project. "In this field, everyone is worried from the day they join a company. There is no guarantee at all," says Addy, who now works at Intelenet, a third-party BPO in Mumbai.
Add to that the recurring complaints of employee ill-treatment. The V.V. Giri National Institute of Labour shocked the industry a few months ago with its report on the status of staffers at call centres. The report compared them to 'nineteenth century prisons or Roman slave ships'. Around then, the International Labour Organisation slammed the environmental conditions in call centres. "[In BPOs] indoor environmental conditions are indecent, hazardous, and, in 90 per cent of the cases, lead to air problems," said ILO spokesperson Ingrid Christensen.
If the present is imperfect, the future, too, does not look all that rosy. The sector growth rate has plummeted from 48 per cent a year to 35 per cent. US technology research major Forrester said last month that the growth rate would go down further to 28 per cent in the coming year.
Another report, by Chicago consulting firm Diamond Cluster International, predicts that the BPO boom is over for India as companies learn to be more strategic. It says India's BPO hubs like Bangalore and Chennai have reached labour saturation, and that the shortage will see outsourcers shift towards China.
The study also claims that US-based companies are ignoring cost issues to outsource to neighbouring Canada, because of proximity and similarities in language and culture. The really worrying part of this survey: 75 per cent of the respondents are companies currently outsourcing to India.
Nasscom and BPO majors have closed in to take on the crisis, though their strategy to fight the backlash has been mostly bluster. "These are decisions of individual companies; it does not change the overall attractiveness of India," says Nasscom president Kiran Karnik. He says that inspectors of UK's Banking Code Standards Board had scrutinised Indian call centres and found the security and data privacy standards to be exemplary.
The reaction to the issue is insipid, say many industry analysts. With increasing incidents of fraud by call centre workers, Nasscom's response has not been to ensure accountability and get stringent laws passed by the government, but a voluntary initiative called National Skills Registry. The registry is a database of third-party verified IT professionals. However, only around 30 companies have joined the registry, while the BPO outfits alone number over 400. "Is there really a concerted effort to make erring staffers accountable?" asks Bidani of Colt Telecom. "A lot of it is eyewash because the cost of background vetting is prohibitive."
Cost-effectiveness, too, no longer applies to Indian BPOs. The cost of living in Indian cities like Bangalore and Delhi has shot up dramatically, as living standards and expenses have increased, partly fuelled by BPO professionals themselves. With high rates of attrition and demand for skilled labour intensifying, salaries, too, have gone up at BPOs, reducing their cost advantage.
"With the emergence of alternative low-cost destinations, this argument will wear thin," says B. Sathya Seelan, vice-president (HR) of Chennai's Allsec Technologies. Emerging markets like the Philippines, Malaysia, Vietnam and Eastern European countries like the Czech Republic and Poland are gearing up to grab more of the lucrative global BPO pie.
In that challenge could well lie a way out of the present gloom. "India's competitive advantage is not that we can speak English or cost effectiveness; it is brain power that we should capitalise on," says Bagai of EXL. Agrees Anshumali Saxena, AVP (business development), EMR Technology Ventures: "Eventually call centres will go to [countries like] the Philippines and Bangladesh. Jaane do. India will scale up to knowledge processes. This constant scaling up is a business reality. You never thought of equity research five years back. Now, so many BPOs have scaled up to it."
But that also means the availability of highly skilled personnel. The present trend of catching youngsters may not work. Firms like Progeon, the BPO arm of Infosys, are reportedly taking in unskilled youngsters one or two years younger than the average industry age and training them. The Call Centre Association of India recently launched eKaliber, a project to train class 12 students for a BPO career. One solution, which could also neutralise the complaints about quality of service, would be to treat BPO as a mature, demanding business and rid it of the 'fun place to work' bait used to lure uncomprehending youngsters.
"As the business scales up and there is a shortage of skilled labour, maybe we should look at older people, like retired bank professionals and business executives, who are competent enough to stay ahead of the growing needs of customers," says Abraham. Perhaps grey hair and worry lines are just what are needed for BPOs to get over their existential crisis.
