The BPO boom

Print edition : December 19, 2003

A call centre at Tidel Park. - R. RAGU

Chennai emerges as a destination of choice for several companies developing BPO activities.

BUSINESS Process Outsourcing (BPO) is the new buzzword in Information Technology (IT) circles. Typically, it involves the farming out of day-to-day operations of companies in the advanced countries to entities in developing countries to take advantage of lower wages. The development of IT facilities makes this possible. While BPOs could be in the form of call centres, medical and legal transcription facilities, airline ticketing and accounting operations, the basic idea is to lower costs for companies in the advanced countries. IT enables the transmission of data on an almost real-time basis so that data from any location can be processed at any other location in the world. The United States market has been particularly lucrative for Indian BPO companies because of the 12-hour time lag, which enables even day-to-day operations to be carried out seamlessly in India when the U.S. markets close for the night.

Companies located in Chennai have taken advantage of the interest in the BPO segment. Several companies have established bases in Chennai to cater to the needs of companies operating from overseas markets. Speaking at a seminar on BPO held in Chennai recently, Romi Malhotra, Chief Executive Officer and Managing director, Scope International Private Ltd., a subsidiary of Standard Chartered Bank, said that the city suffered because of "perception-related problems", something which he said was far-removed from reality. He advocated "proactive selling" by the State government in order to enable Chennai to emerge as a destination of choice for BPO activities. Scope employs 3,000 persons at its centre in Chennai; that number is set to increase to 5,000 soon.

Malhotra believes that the Tamil Nadu government needs to address several major issues if it is to achieve its objective of capturing 15 to 20 per cent of the BPO market by 2008. The market size itself was estimated to grow to about $20 to 25 billion, a market share that would generate large growth opportunities, both directly and indirectly. It is agreed in industry circles that there is a dearth of manpower. Academia, government and the industry needs to work together to overcome the shortage. There is also agreement among IT professionals that apart from looking at BPO as an opportunity for growth, the State government should benchmark practices here with the best in the world, and not with those in other Indian cities.

Several companies have made a beeline for Chennai to set up BPO facilities. The London-based Foresight group recently set up a BPO centre in Chennai involving an initial investment of $600,000, which is to increase to $2 million by the end of the financial year. Through its subsidiary, Supersight, Foresight has set up Supersight Ceequence Technologies Ltd. in Chennai, which operates a call centre. Ceequence plans to expand the facility to 1,500 seats with a turnover of $100 million by 2005. The call centres cater to the needs of two U.S.-based travel and leisure companies.

Realising the importance of the city as a base for BPO and IT-enabled Services (IteS), the National Association of Software and Services Companies (Nasscom) launched the Chennai ITeS BPO forum in June 2003. The forum, apart from seeking to build the "Indian IT brand", will take up issues relating to IT, telecommunication, education and training sectors. Speaking at the launch, Nasscom president Kiran Karnik said that despite its great potential, Chennai had been "undersold" in the IT market. He said Nasscom launched IteS to market the city and the State. Karnik rued the fact that IteS facilities have been limited to call centres. Karnik, as well as several other seasoned observers of the IT scene, have observed repeatedly that worldwide the IteS sector is highly diversified. They have often pointed out that unless Indian companies upgrade themselves into value-added service providers they will be priced out by competition from other countries.

Although it is important not to exaggerate the potential of the ITeS sector, its proponents believe that the employment implications of its growth appear remarkable. According to Nasscom's annual industry survey, the IT software and services industry is projected to employ 6.50 lakh IT professionals by March 2004. Worldwide spending on ITeS and BPO was estimated at $712 billion in 2001, according to Romi Malhotra.

Realising the importance of Chennai as a BPO hub in India, the World Bank, which already has a back office operating from the city, recently announced that it was exploring the possibilities of expanding its office in the city from "basic processing" to "value-added work". The bank is to soon move to its own premises, spread over 60,000 sq ft, from the current rented premises of 27,000 sq ft. Addressing the media on the sidelines of the Seventh National e-Governance conference in Chennai recently, Fayezul Choudhury, Vice-President and Controller, World Bank, said the bank was satisfied with the performance of the 180-member BPO team in the city and was seriously considering the option of moving some sections of its bond valuation work to Chennai. He said: "This value-added work, which was performed once a month, can be handled by a small team."

He said that the bank, which had earlier explored BPO possibilities from a "can-we-do-it" mode, now looked at it from a "what-more-can-be-done" perspective. There has also been speculation that the bank may move its bond evaluation work from Washington to India. If that happens, it would be the first time it moved such work out of its headquarters in Washington. The size of the bank's commercial bonds portfolio is estimated at about $100 billion. The World Bank commenced its BPO in Chennai in August 2001 as a primary processing facility, including payroll processing work in August 2001 with a team of 80 persons. The team now has 180 persons.

String Information Services, based in Washington, also has operations in Chennai. The company has developed proprietary tools for data conversion, data harvesting and quality control. The company claims that it chose Chennai as its base in India because the consultancy major McKinsey had ranked the city as the number one destination for BPO operations in India. Apart from Scope and the World Bank, e-Serve International, belonging to Citibank also has operations in Chennai. Lal Gardner, a Director in the World Bank's Accounting Department in Washington, said: "We looked at various parameters including availability of relevant skills, robustness of IT infrastructure, real estate issues, the number and experience of similar entities established in the city before deciding on Chennai."

Industry sources say that though BPO is still an emerging industry, Indian companies have moved up the learning curve. Infrastructure, in terms of telecommunication facilities, has also improved significantly in the last few years. The industry is now aware of the finer aspects of the business. Sources say that they have learnt to benchmark their operations. The industry has also learnt about ways to scale up operations, and how to bring down telecommunication and labour costs. Different BPO companies adopt different models. Some offer end-to-end solutions and some multi-city, multi-country or point-to-point solutions.

Although there are apprehensions that BPO services like data processing and call-answering facilities may move to other countries that may offer cheaper rates for such business services, industry sources are confident that this will not happen so easily. They say that the barriers to exit are rather high, which will deter companies from moving to other locations. Instead, they claim that it is worth "betting on BPO" because it is the single biggest opportunity for India to become a service economy. They believe that BPO can generate employment for 1.2 to 2 million people in the next five years, generating $15 to 20 billion of revenues.

A top source in a BPO company in Chennai believes that the city is probably placed in fourth or fifth position in India. He said: "The national capital region is clearly number one, Mumbai is number two, followed by Bangalore, Hyderabad and Chennai. Educated, low-cost manpower and a favourable work culture are the advantages of Chennai." The low attrition rate in Chennai - which is about 15 per cent, compared to over 50 per cent in most of the other major Indian cities - is said to be attractive for companies operating from the city.

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