Fulfilling the BPO promise

The Indian business process outsourcing (BPO) industry continues to grow at a scorching pace. Barely four years old, it clocked an export turnover of $3.6 billion in 2003-04 and is slated to grow at 40 per cent plus in the coming years.

It already employs over 240,000 people and this can quadruple to a million by 2008. If that were to happen and current billing rates are maintained, BPO companies could give India annual exports of $20 billion. The industry would then be a major source of quality white-collar jobs.

Indeed, more is happening in BPO than most people are aware of. The captive units of multinationals currently contribute over 70 per cent of industry revenue and they are underplaying their level of outsourcing because of political sensitivities.

Since BPO is the goose that is laying the golden eggs, it is vital that the government do what it can to further its growth. At the recent BPO summit in Bangalore, the industry made precisely such a plea.

The foremost task before the government is to pass a law to ensure data security. The opponents of offshoring are making an issue of the absence of such a law in India.

Even without them, it is good to have a law in place as the industry handles more complex tasks. The government's next job is to address the infrastructure problem. Urban amenities need to be rapidly improved, not just in the metros but also in the second tier cities where the BPO industry is spreading to cut costs.

The government also needs to help bring down telecommunication rates, still high compared to those in competitors like the Philippines. Further, the rules need to be changed so that domestic and foreign calls can be handled by the same centres. This will give the industry economies of scale and help it manage its costs better.

The third party BPO operators (mostly the big Indian-owned firms) are still too dependent on call handling and have to go more into managing entire processes.

Without this, the industry will remain at the low value end. The rampant price cutting shows that the industry has some way to go in ascending the value chain.

Currently most large Indian BPO companies are competing on price by capitalising on India's low costs. Their desire to grow rapidly so as to reap the economies of scale in the industry is understandable. But it is time the industry concentrated on more than just the low hanging fruit.

To do this it will have to address the shortage of middle managers. The industry also needs more entrepreneurs, as it is already consolidating before it has properly matured. New start-ups with novel ideas should still be able to find space in the sector, and add to the vibrancy.