| 'STPI scheme is important to remain competitive' | |
| Q&A: Sam Chopra | | K Rajani Kanth / Chennai/ Hyderabad August 16, 2008, 2:45 IST | |
The Business Process Industry Association of India (BPIAI), formerly called the Call Centre Association of India (CCAI), represents 70 per cent of the BPO workforce in the country.
The association has been stressing the need for decoupling of BPO from the IT/ITeS. BPIAI president Sam Chopra contends that BPOs would be hit hard if it remains clubbed with the IT industry.
Speaking to K Rajani Kanth, he puts forth the association’s demands including extension of tax holiday and the measures that the sector needs to move up the value chain. Excerpts:
Why do you want the BPO sector as a separate industry?
Being termed as ITeS, the perception is that BPOs are as mature as the IT industry. But, the IT industry has enjoyed tax breaks for over 20 years, while the BPO industry has been availing this benefit for only a decade.
Tax sops from the Software Technology Parks of India (STPI) will also disappear for these companies and this might turn away investors to other offshore locations like East Europe, South America, China, Sri Lanka and the Philippines.
That's why, we believe the government stands to lose more in terms of indirect taxes than it will gain from taking away the tax breaks.
How many STPI units are there. What is the investment figure?
As on December 2007, 146 projects with an investment of Rs 4,424.6 crore were outstanding in the ITeS sector. Of these, 69 projects amounting to Rs 2,712 crore were under implementation.
Almost 70 per cent of BPOs is under the STPI scheme, which expires in 2011. Those that are not are either catering to the domestic sector or are too small to be able to reap benefits or are captive BPOs affected by transfer pricing and having minimal capital equipment imports.
According to leading analyst firms, if all the existing challenges are coupled with the expiration of STPI scheme, BPOs' margins will take a hit of 7-10 per cent.
This will happen because the BPO sector is still in its nascent stage and has a headcount-based pricing model. We are requesting the government to stagger withdrawal of the scheme for another 15-20 years and give a longer tenure to the MSM segment.
Once decoupled, what are the benefits the BPO industry is expecting?
For small players to reap major benefits, they require government support in their startup stage.
Post decoupling, BPOs will be in a position to use same infrastructure for domestic and international businesses and reach out to the masses, which will decrease their dependence on expensive metros. As the business will expand, the activities will surely translate into better revenues.
What are the recommendations that BPIAI is making towards this?
The rupee rise is a major test for Indian BPOs as they bill in dollars while expenses are met in rupees.
According to analysts, a one per cent rise in rupee translates into a 50 basis point negative impact on the margins. The extension of STPI scheme is important for India to remain competitive at the global level.
Today, China, the Philippines and even neighbouring Sri Lanka are offering long-term benefits to the BPO industry. If the BPO industry growth has a catalytic effect on the rest of the economy, then there is a larger problem of a hit on a major part of the Indian economy.
The BPO industry needs a stable or a gradually declining currency, more government support on education and a gradual phasing out of the export tax benefits.
Can small BPOs survive given the sub-prime crisis in the US and inflation back home?
The subprime crisis and subsequent financial problems like the weak dollar have hit the industry pretty hard. The margin pressures, business loss coupled with the unreasonably high inflation in our own country have been too much for the industry. There has been immense pressure on smaller players to give innovative offerings to their clients.
Many players have been forced out of the industry and the ones that remain have been cutting their cost drastically. The hirings have gone down and there have been major reductions in transport costs, telecom expenses and employee benefits.
For instance...
There are a few desirable outcomes. Because of the slowdown in the international market, the spotlight is on the domestic part of the business. The domestic business has grown at a rate of 50 per cent.
Also, smaller towns are getting a chance to showcase their potential. Because of the sky-high real estate prices and talent crunch in big cities, many players are turning towards small towns.
The other positive aspect which has come out of this is that we are finally looking beyond the US and Fortune 500 companies. Vendors are looking at the huge mid-market opportunities that lie in US and Europe.
Are there problems on the HR front and retaining talent?
BPOs in India are expected to employ around one million people by 2008. But the challenge is to find quality human resources given the current attrition rate of around 40 per cent because of organisational policies, salaries, work culture among others.
Currently, it is about 35 per cent in non-voice and 45 per cent in voice call centres. We have been asking our members to shift focus to smaller towns for hiring, implement job rotation to sustain motivation, introduce part-time and short-duration work options among others.
How can BPOs move up the value chain?
The BPO industry needs to have alliances for technology and consulting expertise to drive down the transaction costs, at the same time addressing customer concerns on data security.
The Indian players must now get their foothold in China, Philippines, Korea and eastern European countries so as to cater to non-English speaking eastern European and Far East countries.
Most of the revenues for the Indian BPO industry comes from metros including Bangalore, Chennai, Mumbai, Delhi-NCR, Hyderabad and Kolkata.
The industry is still focused on these locations because of the infrastructure. Some of the locations emerging as small BPO hubs are Chandigarh, Kochi, Pune, Jaipur, Coimbatore, Mysore, Mangalore and Visakhapatnam.
What is the future potential of the BPO industry in India?
The industry employs over 700,000 people across 25 countries and accounts for approximately 40 per cent of the global BPO offshore market. The Indian BPO Industry is over $11 billion today and the target is $50 billion by 2012.
This reflects a five-fold growth over the next five years and can create over 2 million direct jobs in India. The government will need to actively support and partner the industry to ensure that India does not lose out on the opportunity to add up to 2.5 per cent to its GDP by 2012.
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