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'The days of captive BPO are not yet over'

Q&A/ Bhupesh Bhandari & Bipin Chandran

Ananda Mukerji  |  New Delhi 

In August this year, Temasek and Westbridge Capital picked up a "substantial minority" stake in ICICI OneSource. This was Temasek's first BPO investment.

Ananda Mukerji The company has also been in the news for four acquisitions in the past two years "" two in India and two in the US. Ananda Mukerji, the managing director and CEO of ICICI OneSource, spoke to Bhupesh Bhandari and Bipin Chandran on a wide range of issues facing the BPO industry. Excerpts:

GE recently offloaded a majority stake in Gecis, its BPO arm, to private investors. Are the days of captive BPO over?

Not yet. Companies go captive for two reasons: one, they want to insource the work while taking advantage of the strengths and skills of Indians; and two, there is no credible third-party BPO. We had anticipated that 60 to 70 per cent of the industry will always remain captive.
When GE came to India, it was still early days for the industry and there was no third-party operator in the country. Over the past four years, credible third-party BPO companies like ICICI OneSource have come up.
Companies that think BPO is not core to their business will now want to outsource to these companies.
What does Gecis' entry into third-party BPO mean for companies like ICICI OneSource?
All of us will need to upscale.
The pace of outsourcing had come down during the US presidential elections. Now that the elections are over, have you seen an increase in the pace of outsourcing?
It is true that due to elections and political issues, some US companies had gone slow on their outsourcing decisions. But now we expect it to pick up. I think these are certain cyclical issues that the industry has to go through.
On the other hand, there is a perception that the whole controversy about outsourcing has worked as a free publicity campaign for the country's BPO companies. Others are reporting far more enquiries than an year ago.
It's true. The market is getting wider and even smaller companies are now interested in knowing about the advantages of offshoring to India. We have had enquiries from even building societies in the UK. You can't get smaller than that.
Are BPO companies still working on wafer-thin margins? How have billing rates moved ?
Billing rates have stabilised now. When the industry was just starting up, the Indian and the US companies did not know what to charge. As a result, most Indian companies got much higher billing rates.
But after four years, the US companies know about the rates that companies charge, which have become a benchmark. And with competition, the rates have come down.
How is it for ICICI OneSource? Are you a profitable company?
We turned profitable last year.
Indian BPO companies are under attack from other countries like the Philippines. How do Indian companies counter this threat? Are you looking at markets beyond the US and the UK?
Tier-one players in the business need to have delivery capabilities wherever required. For instance, we realised that late-stage collections are best done out of the US. That is why we acquired a company in the sector there.
Currently, our markets are the US and the UK because of our strength in the English language. But we have started looking at other markets like mainland Europe and the Asia-Pacific region.
Temasek has recently invested in our company, which is its first investment in a BPO company. It has some strong relationships in Asia Pacific and we are trying to see how these can be leveraged.
We have started talking to a few of those companies. There is a team in place for the Asia-Pacific market based here in India.
But the Asia-Pacific market is different from the US and UK.
Yes, it is not so big as the US. Also, cost is not an issue in the region. The difference in wages between China and India is not the same as the difference between the US and India.
In this region, getting business will depend on what skills you have and the platform on which you deliver your services. And of course, you need to have multi-language capabilities.
Even the US and the UK have gone beyond simple cost arbitrage. We need to do things that they cannot get elsewhere.
How have valuations in the BPO sector behaved in the past few months, especially since billing rates are under pressure?
As I mentioned, the billing rates have stabilised now. Valuations of BPO companies have been rising on account of a strong market interest and lack of good investment opportunities. Private equity investors are seeing it as an attractive investment proposition.
Also, the industry dynamics is such that it will require huge investments. A lot of it will come in the form of private equity. The IT industry has been around for 15 years but there are still not too many companies with a turnover of $100 million.
But in the IT-enabled services (ITES) sector, you have almost 10 players with a turnover of $100 million.
But the presence of a large number of players in the sector has also resulted in service standards dropping. Some Indian companies have lost clients because of quality-related issues. What steps have you taken to tackle this problem?
The top-tier vendors have strong quality and security processes. All of them are investing large sums of money to keep their processes at global standards.
Where customers cancelling contracts on grounds of poor service quality is concerned, I think these are isolated cases. In fact, top-tier ITES companies have systems in place that are capable of detecting issues right at the beginning and take care of it. We have not lost a single customer or process due to quality issues.
At ICICI OneSource, each agent is monitored continuously and evaluated on multiple parameters. The pressure for most of the agents is not the work timings but the constant evaluation they undergo.
On the other hand, most companies do not come to India because of just the pricing. Cost is one factor but the most important one these days is quality. Top-tier Indian companies are now known for their quality standards.
There may be quality issues with smaller companies and with those who decide to take up work without actually knowing about it. But such cases are bad for the country and not just the industry/ company.
Indian ITES companies have to deal with high attrition. How are companies tackling this issue?
Attrition is a major problem for this industry not only in India but the world over. In India, we have an attrition rate of about 45 to 50 per cent. It is higher in processes like voice call handling but low in areas like analytic and recovery.
However, now there is a change in the way people looked at ITES sector as a career. Recent studies have shown that people are now looking at this job as a long-term career and not just a stop-gap arrangement. This is an issue that the industry needs to work hard on. At the same time, I think attrition will remain high in this sector.
Is branching out to newer cities one way to counter high attrition rates because if there will be lesser BPO companies, job switching won't be so easy.
Companies are looking at going to smaller cities because of high attrition in cities like Mumbai, Delhi and Bangalore. In smaller cities you get a larger pool to select from and the rate at which people leave the company is also low.
Another factor that makes companies move to smaller cities is the availability of superior infrastructure there. Earlier, telecom, power and support services were issues in smaller cities. That has changed now.
The quality of power and telecom infrastructure is equally good in small cities. We now have some of the best infrastructure and builders for the BPO sector in India.

First Published: Fri, December 03 2004. 00:00 IST