Long distance international travel, with better aircraft, better in-flight service, greater variety of schedules has, at one level has become faster and more convenient. However, at another level, with so much security, body searches, hand baggage restriction, has become far more difficult. Frayed tempers, frustrated travellers and ugly scenes are becoming more and more common at Heathrow than ever before.
Therefore, it was with some relief that I found myself sitting next to a truly pleasant fellow passenger, who turned out to be a retired Church of England priest. We spoke of many things and when he learnt of my background, he was most interested in Indian BPO. He seemed to know far more about it than could be credited to a healthy diet of the London tabloid newspapers and we ended up with a surprisingly in-depth conversation about the issues facing the industry.
Reflecting upon my unusual in-flight conversation, I realised that it was a telling example of how widespread interest in Indian BPO was. The Indian industry has done nothing if not generated a huge amount of press, both in India and overseas and clearly, its obvious reach is remarkable. More people than one would have believed possible are interested in what is going on in India.
India in BPOA very common question by anyone reading about the undeniable success of India as an offshoring destination is why is this about India alone? After all, there are many other low cost countries, many with good English language education, some physically closer to the west, some others more culturally in line with western systems and so on. Why is it that India has taken such a lead in outsourcing?
The answer is not a straightforward one. After all, Pakistan shares many of the attributes that make India so successful in BPO; Philippines, Malaysia, Vietnam are all very strong contenders and do not have many of the infrastructural problems that will stay with India for many years; Poland, Hungary, Czech Republic, Slovakia, Romania, Bulgaria are all much closer to Europe, some even part of EU and have very strong work ethic accompanied by low wage workforce; almost all of Latin America has advantages of time zone and cost that India will never be able to replicate – so why India?
I have tried to answer this question many times – with arguments of language, history, population, education, middle class work ethic, time zones etc and I have to say that there are as many opinions as people who espouse them. For my part, the question is somewhat academic – fact is that India is successful in BPO. It is not a theoretical experiment where we are trying to cause a result by looking at X number of variables. The success is there for all to see – all we are trying to do is to explain it, rather than cause it.
Personally, I think the presence of the IT industry in India has had a lot to do with its success in BPO, in addition to many other demographics. One could of course, argue that the IT industry is itself a product of time (Y2K) and place (Indian demographics) but what industry isn’t? However, Indian IT potential attracted world class companies into India (Citigroup, GE, IBM, Intel, Texas Instruments etc) who were quick to recognise the logical extension of IT into BPO (something the Indian IT industry took much much longer to figure out). BPO became like a mushroom – which initially grows much better under the shade of a tree, but ends up being a lot more widespread in the forest.
Be that as it may, from where we stand today, India is a success story in BPO, with no qualifiers. However, it is worthwhile trying to analyse components of this success.
Indian companies in BPO
Let’s start with a look at Indian BPO companies.
The numbers tell a very interesting story. The industry is $5.2 billion in size. Estimates will vary but of this, at best, only 30% is represented by Indian companies – which is only about $1.6 billion. Further, if you look at the Nasscom ranking of Top 10 BPO companies, my best guess at their combined turnover would be around than $1.2 billion. Sadly, with average turnover of $120 million, none of these companies has the scale to be a meaningful competitor to anyone but themselves.
The figures are even less encouraging when you think about the 300 or so companies who comprise the remaining $ 400 million turnover of the Indian BPO industry – an average turnover of $1.3 million. The picture that emerges is one of a fragmented, sub scale industry which is at very early stages of growth – again something that intuitively does not sound wrong. Certainly, it is much too early to declare victory.
India in BPO – Product of captivitySo even if the BPO companies are not the glittering examples of global success that we all thought, surely that does not take away from success of Indian BPO?
Fact is that a huge part of the Indian BPO industry is made up of captive operations – primary captives like e-serve International (Citigroup), HSBC, Scope (Stanchart) etc and secondary captives like IBM, Accenture, HP and so on.
It’s an interesting parallel from Indian history where greatest innovation that transformed the country in the last few centuries came not from “Indians” but foreigners who ruled India – be it civic, monetary and governance systems from the Mughal rulers or infrastructure investment – railways, education, roads, postal service etc. under the British. It makes me wonder if the BPO industry is destined to go down the same path, because the indisputable fact is that most of the growth in Indian BPO over the last 2 years has come from captives of international corporations and not from the Indian BPO companies.
The Indian BPO companiesAt one level, this is unimportant where the growth comes from as long as the country benefits. However at another level it is important to understand that Indian companies in BPO are riding on the coattails of the captives and should not be thought of being as successful as the overall industry.
While the Indian BPO companies have done well so far, in my opinion, they are at a crucial juncture. They do have lots of positives – they have pretty good delivery. They are by and large able to attract more entrepreneurial managers than captives. They are winning business in global tenders which is sharpening their market skills.
However, we need to remember that the organic growth of most Indian BPO companies is much slower than industry. Most Indian BPO companies report indifferent profitability (if they ever bother to report anything at all), do little to further the cause of BPO globally, are extraordinarily timid when making investments or taking what they mistakenly perceive to be “risks”. As a result, none of them have the scale to take on world players. None of them have the financial depth or managerial talent to undertake the mega projects that caused companies like IBM, EDS, and CSC etc to grow. None of them have invested in front end relationships that will give them an early lead into deals. And perhaps, most worryingly, none of them appear willing to make the strategic investments necessary to close these gaps.
The reason is simple – they think of themselves as successful. And success often leads to complacency. Further, if you are successful, you tend to repeat behaviour that has brought you success and many times, it is this very closed mindedness that eventually causes you to not succeed.
In my view, all Indian BPO companies, whether independent ones or BPO subsidiaries of Indian IT companies are guilty of this type of thinking. The independent Indian BPOs don’t really have the financial depth to undertake “risky” investments and the ones owned by IT companies, who do have the financial depth do not have the freedom of strategy to do the right thing. They are simply following the parent company mindset, whose success was achieved under very different circumstances.
India or Indian?
So where does all this leave us?
To me, the issue is simple. That India will succeed in BPO is a tautological statement. However, success of India in BPO is not the same thing as success of Indian companies in BPO. I believe that the industry is at a juncture where both of these are possible but it does not help us to lose sight of the fact that both these are to some extent, independent and that one does not necessarily follow the other.
Personally speaking, I would like nothing better than the Indian companies become world class threats on the global BPO stage. But being realistic, I don’t see this happening. I don’t see Indian companies investing in front end customer relationships; I don’t see Indian companies investing in BPO platforms that will allow them to change the linear relationship between revenue and headcount; I still see Indian companies measure success by number of seats; I see Indian companies competing fiercely for deals that are brought to India either by BPO consultants or buyers themselves but I don’t see Indian companies trying to redefine the local BPO markets in US and Europe. This is a great pity because I believe that they do have most of what it takes. Except possibly, the mindset.
It is this mindset that will ultimately make the difference between success and mediocrity. The problems of today in the Indian BPO industry are pressing and urgent. But the problems of the future are no less. Perhaps “future” is not the right term because it leads us to believe that we have time to solve them later. To me this matter has a great sense of urgency because the fact is that we do not have much time. The notion is best captured in the words of science fiction writer, William Gibson – “the future is already here – it’s just not evenly distributed.”
The future is about to catch up with Indian BPO in a hurry. A concatenation of economics and demographics has presented India with a unique commercial opportunity. It would be an enormous pity if the Indian BPO companies were not to seize this. If they do, they will own the future. If they don’t, they will not.
