The Indian BPO Industry

2004-03-07T06:02:00.000-08:00

The Zenta Group story

The Philadelphia Inquirer has profiled US and India-based Business Process Outsourcing (BPO) firm Zenta Group. The article provides some hitherto unknown facts about Zenta as well as some good PR for the company's offshore operations.

Zenta was founded as a subsidiary of Mumbai-based real estate development firm The Hiranandani Group. Zenta is led by its CEO Priya Hiranandani (Age: 27). Intrepid Capital Partners LLC, a venture capital firm founded by Warren "Pete" Musser (who earlier founded Safeguard Scientifics Inc.) and Non-Resident Indian Cyrus K. Vandrevala, acquired a 50% stake in Zenta in September 2002 for an undisclosed amount. Hiranandani and Vandrevala married in February 2003, the Philadelphia Inquirer article says. US-based debt collection firm NCO Group (formerly known as National Collection Office) is one of Zenta's largest customers. The company, which currently employs 1,900 (and recruits about 120 each week) expects to go public by year end.

Click Here to read the Philadelphia Inquirer article.

Click Here to visit the Zenta Group web site.

2004-01-23T05:57:00.000-08:00

We’re not moving jobs offshore; we’re adding jobs worldwide: Dell

Here is what Michael Dell had to say, in his interview to Always-On Network, when asked whether his company was sending jobs offshore in order to cut costs:

We’re not really moving jobs offshore; we’re adding jobs all over the world. We added a couple thousand jobs in the US this past quarter on a year-over-year basis. We added jobs all over to support our growing business. My own view is that the bogeyman of offshoring is a lot worse than the reality. I think jobs have been moving from one country to another as long as there have been electricity and telephones and transportation.

Click Here to read the full interview.

2004-01-09T03:18:00.000-08:00

How to get a call center job

Business Standard sent three of its younger correspondents posing as job seekers to call centers (or rather, placement agents for call centers).

Here are some extract from "their findings":

After the test I was given a detailed form that asked about my education and family background. I was puzzled by one part that inquired about relatives in the United States and their phone numbers. This, I discovered later is to prevent people calling relatives in America.

I struck up a conversation with an industry veteran (she must have been all of 22) who had quit her last job after being refused two-weeks leave. “I had a genuine reason, yaar,” she insisted.

Industry of the year it may be but the HR manager didn’t try to paint a rosy portrait. “It can be very frustrating if for eight hours everyday, all you have to do is to answer the queries of irate customers. Continuing to be polite while the person on the other end may become abusive is pretty difficult,” she warned....

Mr HR’s speech omits nothing, painting a dark picture of late nights spent doing nothing but answering calls, with one 30-minute and two 15-minute breaks. There will be two days off a week but it won’t necessarily be a Saturday and Sunday. Your social life will probably disappear, he says pleasantly.

Click Here to read the full article.

2003-12-30T02:51:00.000-08:00

Private Equity Week features heated debate on offshore outsourcing

Though it isn't clear why the social implications of offshore outsourcing is a fit concern for a magazine focussed on Private Equity, PE Week's Editor-At-Large Dan Primack has triggered off an interesting debate with his column on the topic.

According to Primack, US-based businesses should examine every possible avenue of hiring locally before going overseas. "It should be one of the most difficult decisions of your professional career. If it isn't, then it's generally safe to say that you are a fairly self-centered and callous person," he says in his column. "For those companies who do wind up with operations in Beijing or Mumbai, it is your responsibility to retrain the workers you are leaving behind and/or to help them find new jobs," he adds.

The column has received feedback from several PE Week readers. Some extracts from the feedback that I found interesting:

The Sentimental

It is "callous and self-centered" to move jobs overseas? Have you traveled recently to these countries and seen the overwhelming poverty? Provided that you are willing to enact socially responsible business practices in your new locations, the only egocentrism I see is those nationalistic isolationists who don't recognize our universal humanity: foreign people are no less "worthy" of decent jobs than Americans are.

-- Jed W

How about the jobs being created overseas - don't those count? The US is pretty much the most prosperous country in the world and even though we complain that unemployment levels are high, they are one of the lowest levels globally. We learn in Economics that countries should engage in what they do best and that seems to have served the US very well for many years, but now that companies are moving operations to countries where labor is a comparative advantage - complaints abound.

If we say we are part of a global economy we can't expect to just get all the benefits with none of the disadvantages. I'm a dual citizen (American and Nigerian). America benefits from the fact that it can import many of its products to Nigeria since Nigerians do not have the technology to produce these products. But Nigerians (and other agricultural economies) do not experience the same benefits in terms of importing some of its produce to the US because American farmers are subsidized and thus price imports out of the market. Is that fair?

Many of the workers who lose their jobs when basic operations move overseas can get retraining on their own or by the company that laid them off - for example, most employment agencies offer free basic computer training if you sign up with them. We are so lucky in this country but we just don't realize it. Even in the worst-case scenarios where people end up jobless there are welfare benefits which are non-existent in most of the countries where the jobs move to.

I understand that you are trying to make the point that the executives who are moving operations are doing so for purely financial reasons, however, I think there is a broader point here and it is that we should care about those that are less fortunate than us and not just our fellow Americans. There are so many impoverished people the world over that are benefiting from these overseas moves. The overseas moves benefit the people it creates jobs for more than it hurts those who lose their jobs in the US.

--Feyi B

India is a poor country with a billion people. George Bernard Shaw said once, "there is no greater sin that poverty" and when you see that India's teeming millions may have a chance to 'catch up' (well, in another thirty years) in terms of standard of living, etc. the outsourcing story will not sound entirely evil.

Poverty begets many things Dan, and as we've learnt so painfully, Sept 11 was a result of some people's poverty that some greedy but cowardly thugs sitting in mountains managed to exploit. For a more equitable world, the ironing out process will have to come with pain for many....If corporations can somehow be more humane about the outsourcing story, identify opportunities that they say are available in the US and UK for displaced workers, enable job training, reconcile themselves to slower profit ramp up, I guess we can still live in a world where we don't need to start new hatreds.

From my one trip to the US a few years ago, I was touched and moved by the acceptance in the hearts and minds of Americans, from loving Indian food to clothes, to the people, I would hate for all that to be reversed due to the onset of globalization that is unstoppable but something that definitely ..can be handled with more finesse and class.

-- Parvati P

The Practical

What you are proposing here is effectively a "social tariff" on labor (e.g. the "cost" of offshore labor should be considered higher because of exogenous effects on local labor). If a producer can purchase comparable labor at lower prices, then free markets demand that advantage be capitalized upon. To do otherwise, exposes a firm to competitors that do not face such a social tariff. The evidence on the destructive nature of tariffs on markets is immutable. Tariffs protect markets from competition reducing the need (or capacity) to innovate ultimately causing obsolesce. The steel industry in the US is dead because the federal government tried to "protect" it through tariffs. The business was nevertheless captured by the Japanese and others who innovated.

The risk to labor in increasingly technical and skilled areas is absolutely clear. The wage arbitrage opportunity is compelling. But arbitrage is a brilliant equalizing force driving two factors that come into play (1) as the wage differential continues to be exploited, over time, labor prices in the US will go down, and labor prices in India and China will go up reducing the incentive to move offshore, (2) US labor will have to innovate, provide comparative advantage exclusive of price through creativity, imagination, and new skills. This labor rate pressure will demand innovation of labor and lead the US economy into the next growth phase.

The social equity question of who pays for this retooling of American Labor is a difficult one. You can rely absolutely on the fact that people will do what's in there own best interest. Unfortunately, there is no return incentive for companies to simply retrain workers unless it is to improve returns for their shareholders. Unfortunately, the switching or training costs are often out of reach for the average computer programmer with a mortgage, two kids, and a dog. This gap is a credit constraint not unlike that faced by a high school graduate who is desirous of the income effects of acquiring a college degree. Perhaps, the a student loan program designed to fill such a gap is the answer.

Not necessarily an elegant solutions, but competitive markets are harsh In terms of individual outcomes and optimal in terms of overall result.

-- Brian F

One thing to contemplate is why third world countries can compete so easily with US based firms. We spend more money on education per student than any country in the world, but India, China, Romania and myriad other less developed countries beat us not just on price but on quality. I work with a telesales outsourcing company with a call center in India. These people speak better English than most university educated people in the US and with virtually no detectable accent. Furthermore, they appear more motivated.

Does anyone think that working in a call center is a good job? For all our advances in technology and education shouldn't all or most US citizens be capable of far more? These jobs require no more than a 3rd grade education and training in how to use a computer.

Where can our people provide value? How can the US leverage our intellectual property development capacity? This is both a business issue and a societal issue, and we are at a cross road. Do we believe in free trade? How can we saddle businesses with job retraining costs? Can we expect them to pay more for a commodity than the rest of the world?

--Caleb W

Interesting comments. For info, it was quite difficult but we've done that with a startup we bought in the US, when revenues dropped we moved all software devt in Mumbay. It made it possible to build a great product (one of the most promising i have seen this year) and now they are recruiting again in the US. obviously these are not the same people. i am now working on a model where we don't have to make anyone redundant by proposing them jobs as consultants.

-- Herve H

The Critical

It is a debate between economics and politics.

As a VC, the economic rationale for outsourcing/job loss makes perfect sense. If capital flows to opportunities with highest returns; jobs will flow to locations with the lowest costs & highest quality; or labor will migrate to locations with highest wages. America will have to give up free-market capitalism at a global level and resort to protectionism to prevent such arbitrage opportunities from taking place.

The political issue you have raised is valid, but needs to be addressed in a political forum and not an economic forum such as a private equity newsletter.

-- Matthew V

6 years ago business and political leaders in this nation were painting themselves and having the media paint them as "genius" and " great leaders" for leading a wave of economic improvement and stabilization in a friendly nation of ours, India. Now, from all accounts, Indian companies and government economic officials would have to storm the offices of those "leaders" in order to get a meeting. Now they have to hire lobbying firms and play politics to preserve something that they were the beneficiaries of, but less than half a decade ago, we were tripping over ourselves claiming creation of, their economic empowerment and evolution to the table of growing nations.

Come on...quit playing politics with reality, and with historical evolution...

Companies here or anywhere else on earth are in business to "make money"!! That's their purpose, public or private. It's their obligation to do THAT in the most cost effective manner possible, and that has ALWAYS been the case... it's just sad that it's only when downturns hit and we seem to be feeling the consequences of our great, revolutionary leadership does anyone want to stand up and cry. I would have much more respect for those arguing if they had been standing proudly in defiance of all that this outsourcing trend is now producing, if they had done so during the height of the boom of the 90s, years in advance of the downturn and it's potentially having a personal impact on them.

I enjoy your columns and input, but personally, on this point of outsourcing, you've gotten too "political" which hasn't made reading your normally insightful, concise morning reports much different than reading the editorial pages of the WSJ or LA Times.

-- Rob R

Click Here to read the full version of Dan Primack's column and the feedback it generated.

2003-12-30T02:49:00.000-08:00

Productivity is the real "villain" for job losses; not outsourcing

China lost 16 million manufacturing jobs, a decline of 15 percent, between 1995 and 2002, says The International Herald Tribune quoting a recent study by Alliance Capital Management. In that same time, U.S. factory employment shrank by 2 million, or 11 percent. That is, China--the so-called factory of the world--lost manufacturing jobs at a faster rate than the US!!

So where are these jobs going? "That place is called Silicon Valley, where engineers are producing machines that work cheaply and make businesses the world over run more efficiently," says Kevin Laws, Entrepreneur In Residence at Venture Capital firm Pacific Rim Partners, in his VentureBlog article. "Running more efficiently means you can produce more things with less capital --and less people," he adds.

Here is how the IHT article concludes:

As hard as expendability is on the workers themselves, increased productivity is the way progress is made. And the alternative is not so appealing.

"Our studies suggest that hunter-gatherer societies offer full employment for all, simply providing the basic necessities of food and shelter," Steve Wieting, senior economist at Citigroup, says.

Of course, with all of their resources devoted to providing food and shelter, hunter-gatherers tend to have little "income" left to consume anything else - made in China or otherwise.

Kevin Laws rephrases this from a tech industry perspective in his article:

Of course it would be possible to keep the jobs in America through measures to prevent corporations from outsourcing development, just as it would be possible to keep high buggy-whip industry salaries by banning autos.

But we won't, because technological progress makes us all wealthier. Our bargain with each other is that we can't stop the technology that hurts our own jobs as long as others can't stop us from producing the technology that hurts theirs. In the end, we'll do better living in a society that is advancing rather than one that protects all our current positions by preventing innovation.

2003-12-08T02:20:00.000-08:00

Roundtable discussion on the winners and losers in offshore outsourcing

Here are some interesting extracts from a report in the New York Times about a roundtable discussion held in New York on the topic of job migration.

Stephen S. Roach (managing director and chief economist of Morgan Stanley):

Over the September to November period, employment has turned up, but many of those jobs came from the temporary hiring industry. These are service jobs, contingent workers without benefits and significantly lower pay scales. We're getting the G.D.P. growth, and by now any recovery in the past would be flashing green on the hiring front. This one isn't.... This is a profoundly different relationship between hiring and the business cycle. And I think these jobs are, by in large, lost forever....

...This is classic election-year posturing by a Congress that is basically responsible for the problem itself and doesn't want to admit it. We have trade deficits with China and Japan because Washington is running the most reckless fiscal policy we've seen in the United States since the late 1960's. They are the problem. It's not the Chinas and Japans and Indias of the world. Moreover, there are a lot of assumptions being made, especially by political leaders, that the rapid growth of Chinese exports and production is the smoking gun of the threat to traditional sources of job creation. About two-thirds of the export growth China has realized over the last 10 years has come from Chinese subsidiaries of multinational corporations headquartered in Japan, the U.S. and Europe and their joint venture partners. These are our companies. It's us; it's not necessarily them....

...In the future there are two roads. One is to look backward and hang on to what we think we're entitled to. The other is to recognize what has made America. Our virtues lie in a flexible and open, technology friendly, risk-taking, entrepreneurial, market-driven system. This is exactly the same type of challenge farmers went through in the late 1800's, sweatshop workers went through in the early 1900's, and manufacturing workers did in the first half of the 80's. We've got to focus on setting in motion a debate that pushes us into new sources of job creation rather than bemoaning the loss. There are Republicans and Democrats alike who are involved in this protectionist backlash. They're very vocal right now, and they need to be challenged.

Diana Farrell (Director of the McKinsey Global Institute, McKinsey & Company's internal economics research group):

There is an assumption by protectionists that these jobs are going somewhere else, and all this money has been pocketed by C.E.O.'s who take it home. A little more sophisticated version is: It's being pocketed by companies in the form of profits. One step further and you say those profits are either going to go as returns to the investors in those companies, or they're going to go into new investment by those companies. Those savings enable me, if I am an investor, to consume more and therefore contribute to job recreation, and if I am a company, to re-invest and create jobs. That's important because I agree that we are migrating jobs away, some of which will never return, nor should they....

...We will require different services, medical devices, all kinds of things to support an aging population. Fifteen years ago, you would not have been able to fathom many of the jobs that exist today.

M. Eric Johnson (Director of the Center for Digital Strategies at the Tuck School of Business, Dartmouth College:

It's all about innovation and productivity. As long as we maintain those two engines, we'll continue to have a very high standard of living. Out in the Bay Area there are plenty of folks who would love to create a little bit of protectionism around their I.T. jobs, but we are far better off letting a lot of those jobs go. Low-skill jobs like coding are moving offshore and what's left in their place are more advanced project management jobs.

Click Here to read the full article titled "Who Wins and Who Loses as Jobs Move Overseas?"

2003-11-30T08:43:00.000-08:00

Equity research outsourcing picks up steam

US brokerage firms are sending more and more of their equity research work to India says a recent report in Businessworld. The work being done out of India is not just increasing in terms of volume, but also in value. Quoting data from BPO firm Evalueserve, the report says that 34% of the 77,000 professionals currently involved in equity research activities worldwide, carry out "library functions"--i.e., data and information collection work. Some 25% of these functions would be done out of low-cost offshore locations by 2005. By that time, 10% of the jobs in the next higher rung--those of junior analysts--would also be offshored.

Among the captive units, JP Morgan and Morgan Stanley have hired over 1,000 people each over the last year to staff their Indian centers. Other captive operations listed in the article include those of Citigroup (in Mumbai), Lehman Brothers, and HSBC. The report lists Evalueserve (in Gurgaon), OfficeTiger (in Chennai), WNS Global (in Mumbai), Smart Analyst (in Gurgaon) and Irevna (in Chennai) among the significant thirdy-part units in this space.

Click Here to read the full article.

2003-11-30T08:07:00.000-08:00

US CEOs can't afford to ignore India: Businessweek

In its cover story titled "The Rise Of India", Businessweek magazine says, whether Americans regard the outsourcing of services jobs to India as disruptive or beneficial, one thing is clear: Corporate America no longer feels it can afford to ignore India.

Some extracts:

"If India can turn into a fast-growth economy, it will be the first developing nation that used its brainpower, not natural resources or the raw muscle of factory labor, as the catalyst. And this huge country desperately needs China-style growth. For all its R&D labs, India remains visibly Third World."

" Still, this deep source of low-cost, high-IQ, English-speaking brainpower may soon have a more far-reaching impact on the U.S. than China. Manufacturing -- China's strength -- accounts for just 14% of U.S. output and 11% of jobs. India's forte is services -- which make up 60% of the U.S. economy and employ two-thirds of its workers. "

"We can barely imagine investing in a company without at least asking what their plans are for India," says Sequoia Capital partner Michael Moritz, who nurtured Google, Flextronics (FLEX ), and Agile Software (AGIL ). "India has seeped into the marrow of the Valley."

This year, the tax returns of some 20,000 Americans were prepared by $500-a-month CPAs such as Sandhya Iyer, 24, in the Bombay office of Bangalore's MphasiS. After reading scanned seed and fertilizer invoices, soybean sales receipts, W2 forms, and investment records from a farmer in Kansas, Iyer fills in the farmer's 82-page return. "He needs to amortize these," she types next to an entry for new machinery and a barn. A U.S. CPA reviews and signs the finished return. Next year, up to 200,000 U.S. returns will be done in India, says CCH Inc. in Riverwoods, Ill., a supplier of accounting software. And it's not only Big Four firms that are outsourcing. "We are seeing lots of firms with 30 to 200 CPAs -- even single practitioners," says CCH Sales Vice-President Mike Sabbatis.

Adapting to the India effect will be traumatic, but there's no sign Corporate America is turning back. Yet the India challenge also presents an enormous opportunity for the U.S. If America can handle the transition right, the end result could be a brain gain that accelerates productivity and innovation. India and the U.S., nations that barely interacted 15 years ago, could turn out to be the ideal economic partners for the new century.

Click Here to read the full article.

2003-11-14T04:26:00.000-08:00

Why captive BPOs are feeling the heat

There have been a string of announcements from captive BPOs--including the pioneer, GE Capital--that they will start pitching for business from companies outside of their parent. Obviously, these companies have to make very fundamental changes--including setting up marketing teams, re-align their cost structures, etc.--to cater to external clients. So, what is making them take this step?

Businessworld magazine recently carried an interesting article titled "Crunch Time For Captives" answering this question.

"In the last couple of years most of the captive units have begun to hit saturation point. That's when their parent organisations in the US, like GE, took the decision to derisk the India business by setting up alternative bases in Mexico, China, Hungary and the Philippines....By then, most of them had hired people in anticipation of more work moving to India. So when the events of 9/11 took place and concepts like disaster planning became common, they suddenly put a ceiling on how much a captive unit could grow," the article says. "With not enough new work on offer in the last two years, they have struggled to devise new, more meaningful roles for middle and senior managers. The result: attrition rates as high as 35%, with maximum erosion in the middle and senior management levels," it adds.

The article has an Gartner Group analyst predicting that several captive BPO units would be up for sale in 3-4 years time. In fact, the article (quoting unnamed industry analysts) says Infosys' BPO subsidiary, Progeon, has actually avoided scaling up since it expects to snap up such units at a good bargain! WNS President & CFO confirms that his company is waiting for such acquisition opportunities. "The trends globally throw up several instances of third-party vendors (like EDS and ACS) buying up in-house (captive) operations," he says in the article.

Click Here to read the full article.

2003-11-06T21:27:00.000-08:00

US politicians will not legislate against offshoring to India: FEER report

The Far Eastern Economic Review has (rather belatedly) discovered that there is a backlash among US IT workers to jobs getting offshored to India. It provides the usual job loss statistics and quotes all the "usual suspects"--from a representative of the US-based Washington Alliance of Technology Workers and Kiran Karnik of India's Nasscom--in its report on the topic.

The only new aspect in the report comes towards the end and pertains to whether and how the US elections of November 2004 would influence legislation on offshore outsourcing. "It's anyone's guess as to which way the political roulette wheel will spin. We will definitely see more posturing, but the question is: Will we see regulatory action?" Vivek Paul, vice-chairman of Wipro says in the report.

Quoting analysts, the FEER report concludes that India will NOT face strident criticism--and action--even if politicians opposed to offshoring are big winners in the election. "There's no constituency for bashing India," James Steinberg, a foreign-policy analyst in the Brookings Institution think-tank, says in the report. "There are only two countries that get an applause line when they're bashed [in the US]: China and France," Steinberg, who served as No. 2 in the Clinton administration's National Security Council, adds. He points out that it's politically easier in the US to attack Beijing's communist government than the world's largest democracy. On top of that is the fact that American politicians raise a lot of money from Non-Resident Indians in the US.

Click Here to read the full report. (Free registration required).

2003-11-03T22:29:00.000-08:00

New research counters anti-outsourcing lobby

At last, there is some research to counter the huge negative press generated by the "3.3 million US jobs to be lost due to offshoring" report put out by Forrestor Research.

The Indian software industry and BPO industry association, Nassom, in combination with BPO firm Evalueserve, has published a report--backed with numbers--that makes the case that outsourcing (including offshoring) benefits the US economy in the long-term.

Here are some extracts:

Outsourcing is being understood today as a win-win partnership between Indian and US companies. Both are expected to benefit, with the gains spilling over to the overall economies and domestic markets of the two nations. The Evalueserve-NASSCOM research projects the following benefits for the US economy as a result of outsourcing:

* The US economy can expect net savings of billions of dollars due to offshoring over the period 2002-2010. This is over and above the positive impact on the bottom-lines of companies
* For every US$ 100 of call center work offshored by US firms, US$ 145 is invested back into the US economy in the form of repatriated profits, increased sales of telecom equipment and cost savings.
* Similarly, the amount invested back into the US economy (for every US$100 of work) is US$133 for IT services, and US$ 142 for high end knowledge services like equity research, underwriting, tax preparation and risk management
* Offshoring of IT services has enabled US workers to move to specialized and creative roles while moving process oriented programming to offshore locations. The proportion of specialists in the US IT workforce increased from 38 percent in 1983 to 74 percent in 2002
* Utilization of offshore facilities results in the growth of the local economies and an increase in the disposable income, leading to the expansion of the global market for US goods and services. For instance, in India, the proportion of the consuming class in the overall population expanded from 14 percent to 30 percent in the 1990s and is set to touch 40 percent in 2006-07. The Indian retail sector is expected to expand from US$ 180 billion in 2003 to US$ 300 billion in 2010
* Further liberalization of the Indian economy will provide increased access for US companies to Indian markets.
* India's large middle class will open up a major opportunity for US companies
* The US economy will continue to benefit from the Indian community in the country. Indians are the most advanced minority group in the US, with IT professionals contributing over US$ 500 million to US Social Security, $500 million to income tax and spending over US$1.8 billion during visits

Click Here to read the full report at the Nasscom web site.

Other articles & resources in defense of offshoring/outsourcing

Why Offshoring Is Good for America

"Focusing on job losses in America without recognising the corresponding job gains is like managing a bank account by counting the withdrawals, and not the deposits; disregarding the improvements in the quality of jobs is like ignoring the interest payments," says Max P. Michaels, Co-founder of CRYZTAL Capital. "Indian business and political leaders should not get embroiled in these debates, lest India become the lightning rod that bears the brunt of the fury of the US workers. Let the invisible hand of the market make its way. Let US companies and their shareholders enlighten their consumers and workers on the merits of cross-border outsourcing," he advises in a column appearing in Business Today magazine.

Click Here to read the full column. (Subscription required).

The Real economics of offshoring: McKinsey

"Any move to slow down the job migration could actually hurt the United States," says a research report from global consulting firm McKinsey. "Sending US jobs offshore to cheaper labor markets generates heated political debate. Yet offshoring benefits not only individual US companies and their foreign partners but also the US economy, primarily by freeing up funds to create higher-value jobs," the report says

Focusing the offshoring debate on job losses misses the most important point: Offshoring creates value for the US economy by creating value for US companies and freeing US resources for activities with more value added, McKinsey says.

McKinsey says offshoring creates value in four ways:

Cost savings
For every dollar of spending on business services that moves offshore, US companies save 58 cents, mainly in wages. Offshore workers, who enjoy higher-than-usual wages (in their countries), tend to be more motivated compared to US workers who perform the same role. "Reduced costs are by far the greatest source of value creation for the US economy," the report says.

New revenue
In order to provide offshore services, Indian outsourcing companies buy equipment and services--from computers and telecommunications equipment to legal, financial, and marketing expertise--from US companies. McKinsey estimates that for every dollar of corporate spending that moves offshore, suppliers of offshore services buy an additional 5 cents worth of goods and services in the US. Exports from the United States to India stood at $4.1 billion in 2002, compared with less than $2.5 billion in 1990.

Repatriated earnings
Many Indian offshore service providers are in fact US companies that repatriate earnings. Such companies generate 30% of the revenues of the Indian offshore industry. Thus an additional 4 cents of every dollar spent on offshoring creates value for the US.

Redeployed labor
Offshoring also brings indirect benefits to the US economy: Capital savings can be invested to create new jobs. "Indeed, this is exactly what has happened over the past two decades as manufacturing jobs moved offshore," McKinsey says. "As jobs in call centers, back-office operations and repetitive IT functions go offshore, opportunities to train labor and invest capital to generate opportunities in higher-value-added occupations such as research and design will appear."

Net-Net, offshoring, far from being bad for the US, creates net value for the economy. "It directly recaptures 67 cents of every dollar of spending that goes abroad and indirectly might capture an additional 45 to 47 cents--producing a net gain of 12 cents to 14 cents for every dollar of costs moved offshore," McKinsey says.

The report acknowledges that the total possible wealth creation does not ease the plight of people who lose their jobs or find lower-wage ones. "These issues must be addressed. Training programs and generous severance packages, perhaps accompanied by innovative insurance programs, are among the measures that could mitigate the effects of the transition without great cost to the economy," McKinsey says.

The key message is that while many people will undoubtedly suffer short-term disruption, it should be set against the consequences of resisting change: If US companies can't move work abroad, they will become less competitive--weakening the economy and endangering more jobs--and also miss the chance to raise their productivity by focusing on the creation of jobs with higher value added. "The openness of the US economy and its inherent flexibility--particularly that of its labor market--are two of its great recognized strengths. The current danger is that public policy will make its economy less flexible. To do so would endanger the economic well-being of the US."

Click Here to read the full version of McKinsey's defense of offshore outsourcing.

Click Here to view the chart describing the McKinsey's numbers.

An argument for outsourcing

In a recent News.com article, E5 Systems' CEO Gordon Brooks says that while limits on outsourcing may protect some U.S. jobs in the short term, the bans would end up doing more harm than good.

Click Here to read the full article.

2003-11-03T06:37:00.000-08:00

Opponents of offshoring proffer new arguments

With the fear-mongering over job losses managing to just get the attention of a few local politicians and state governments, the anti-outsourcing lobby in the US is now coming up with other arguments against outsourcing. Arguments that they hope will cause some "FUD" (fear, uncertainity and doubt) in the minds of US corporate executives.

Some of these new argument have appeared in the form of articles in Businessweek (which claims the poor quality of software developed offshore actually makes it costly) and San Francisco Chronicle (which worry over the threats to data privacy due to offshore outsourcing).

Click Here to read the Businessweek article titled "The Hidden Costs of IT Outsourcing"

Click Here to read the SF Chronicle article titled "A tough lesson on medical privacy"

Click Here to read the SF Chronicle article titled "BofA to send tech work, data to India"

2003-10-27T21:18:00.000-08:00

Manish Sabharwal's interview to Knowledge@Wharton

In a fascinating interview to Knowledge@Wharton, Manish Sabharwal, Founder & Managing Director of pioneering HR BPO firm India Life Hewitt, provides both solid and witty insights into a whole range of industry issues: how he started out, why he sold out, why he focused on India as a market, etc., etc.

Some extracts:

Business schools as venture incubators
I think VCs who started incubators got it wrong; business schools like Wharton are the best incubators in the world. I milked the school's ecosystem. India Life was my final project in six classes. Many professors helped me think things through, and I had a group of first-year students do a field application project. I used the summer between the two years to travel to India and refine the plan, and then moved back to India straight after school.

I guess it would make a better story if I said all my professors gave me bad grades for my business plan. But they didnÂ’t; they thought it would do well. In retrospect, entrepreneurship is like hypothesis testing. You can never prove anything right, but you have to prove it wrong. Wharton helped me eliminate many potential false starts...It was a movie I hadn't seen before, and having a vision for how it would end gave me unique leverage.

India as a market
Everybody looks at India as a production base, we looked at India as a market -- and in doing that, we inhabited a different thought-world. Because we built our business in India, we were able to leapfrog rapidly into Asia -- into countries like Singapore. For me, the question as a start-up Â– I had raised a teeny $2 million in venture capital from the View Group -– was whether to move back to the U.S. and compete with the big boys or to do it here in India. I decided that it would be good for us to learn in India and expand outside later.....

...We were leveraging across India and Asia, and didnÂ’t have the outdated concept of "export quality". Clients found the single window attractive, which is why 75% of our client base is multinational...

..Most global players are hesitant about setting up operations in Asia because of its complexity. But coming from India, we didn’t have a problem because that is the most complex location of all. So Asia didn't intimidate us...

India's strengths
We compared the Philippines and China, and India’s price performance equation for our business is not going away anytime soon. The Indian mind is quite agile and there is an ecosystem and hinterland that is hard to replicate. I now live in efficient Singapore and believe that one of the upsides of India’s messiness and problems is creativity, questioning and a hunger for jobs.

Beyond low costs
The major challenge is getting the client to agree to what their fully loaded in-house costs are... Using India or the costs of any offshore destination to sell is very dangerous. If pricing is your only differentiator, it quickly becomes a race to the bottom. Even if you win the rat race, you are still a rat...

...We know that for now our cost structure is a competitive advantage but selling on price is a slippery slope. People come to India Life for our domain knowledge, proven track record of execution, re-engineering capabilities and so much else. Obviously price is a ticket to entry that you have to get right but there is much more to the decision.

My sense is that commoditization occurs in every business, and you’ve got to rip up the road behind you. That is why we moved from payroll to HR management, recruitment administration, performance management, training administration and other types of activities.

The need for focus
That’s the only way we can avoid commoditization. Some potential clients say that they will only give us HR if we also take travel and other operations. But that is unacceptable. It would corrupt our DNA. That is why the opportunist or generalist BPO company is dead.

Why India Life sold out to Hewitt
(The biggest challenge for India Life was) we were a start-up and our brand was hardly known. One of the biggest neutralizers of that objection was the gift-wrapping that came with our becoming part of Hewitt. We now have $1.8 billion in revenues, we handle 16 million employees globally, and have an annual IT spend of $350 million. When our customers or prospects hear that, they realize there is much more at stake than their contract....

.....You need deep pockets in this business. God has switched sides in BPO. She is no longer on the side of the best shots; she is with the biggest armies.

On dealing with a large parent
Gift-wrapping doesnÂ’t come without strings, right? ...

You’re riding a horse, and suddenly someone puts a cart behind you...

...I keep telling Hewitt that the removal of resource constraints, which was one of my biggest attractions, does not compensate for the cholesterol that comes with becoming part of a big organization. ...

...Even at this stage of Hewittization, I think it’s a net gain. A water pistol won’t get you very far if you want to meet customer expectations. In HR, the technology treadmill is becoming so hard for companies to stay on. For us it would have been impossible without Hewitt.

The inevitability of offshoring
Many of us in emerging markets like India, who vigorously fought to deregulate and break down our own walls, feel badly let down by the attempt to now build walls against us. Good economics is not always good politics -- but I have faith that this too shall pass. The economics of offshoring are irresistible. The offshoring wave may be delayed, but it is unstoppable.

Click Here to read the full interview.

2003-10-18T03:03:00.000-07:00

The Economist profiles travel BPO firm Tecnovate and its UK parent ebookers

New Delhi-based Tecnovate, the Indian BPO subsidiary of UK-based leisure travel firm, ebookers plc, recently raised $10 million at a valuation of $160 million. The company which has so far catered to the needs of ebookers' European subsidiaries, now plans to use the new funds in expanding its services to third-party clients.

In a recent profile in The Economist, ebookers Founder & CEO, Dinesh Dhamija, explains why Technovate is very important to ebookers' competitiveness. According to Dhamija, Technovate saved his company £1.5m in the quarter ending June 30. “If there is a market share battle, then it will be the company that keeps costs lowest that will be the last standing,” Dhamija says in the article.

An interesting extract from The Economist article:

Delhi helps provide a round-the-clock service along with offices in Europe. But what about local knowledge or language skills? That was the fear of ebookers' office in Finland, which trained some Finnish students and sent them to work in Delhi during their college gap year. The idea has now been expanded and 50 Europeans are working alongside the 600 Indian staff. More are on their way. It is the ability to answer questions by e-mail within a few hours—even on a Sunday evening—which is characteristic of the high level of service that Mr Dhamija is counting on to help ebookers stand out from the pack.

Click Here to read the full article.

2003-10-16T05:40:00.000-07:00

Knowledge@Wharton's interviews with BPO experts

Ravi Aron, a Wharton business school professor, interviewed a range of experts to obtain different perspectives on the latest trends in the BPO industry. The interviews were published in the latest issue of Knowledge@Wharton. As a sample, I'm posting below some extracts that I found to be especially interesting.

Extracts from the interview with Rebecca S. Scholl, principal analyst at Gartner Research:

Aron: Is the decision to migrate or outsource a process seen as a strategic (as opposed to tactical or operational) decision? Who makes this decision within the firm? CEOs, CFOs or CTOs?

Scholl: Key decision-makers for domestic BPO are the CFOs and the CEOS (in large enterprises the CFO plays a larger role and in smaller enterprises the CEO plays a larger role). CIOs and CTOs are rarely involved in the initial decision to outsource and typically get involved during the provider selection process. Most offshore BPO is highly tactical today (CIOs are more involved in offshore BPO as they are in domestic BPO).

Click Here to read the full interview.

Extracts from the interview with Peter Bendor-Samuel, founder and CEO of Everest Group, a consulting firm in Dallas, and Michael Quinn, president of Strategic Management Solutions:

Bendor Samuel: Clearly at this time India has the largest capability for English speaking labor arbitrage and has the most significant momentum with organic in-country firms. We do not expect any other nation to seriously challenge India for U.S.-based business over the next two years. For Europe, we expect Eastern European nations to emerge as destinations of choice, although at a higher cost point to India....

...We believe that the most significant development in offshore outsourcing will be the growth of large sustainable business processes such as claims processing, back office functions such as F&A and HR, and application support. We expect BPO will overtake the current IT-focused projects oriented work.

Click Here to read the full interview.

Extracts from the interview with Kiran Karnik, president of Nasscom (India's software and BPO industry association):

Aron: Some groups that advocate labor interests claim that many of these operations are data sweat shops – i.e., that workers are paid substantially less than the average income levels for equivalent levels of occupations in the country. As a result, they argue, these workers are quite badly off and they work for bare minimum wages. Can you give an estimate of the average salary of a call-center worker in India, and then tell us where this would place her or him in an income gradient - compared to the country’s per capita income?

Karnik: According to a NASSCOM-Hewitt Associates survey, the average salary of a call center worker in India is $180 a month. This is five times the country’s per capita income. For a fresh college graduate, a call center job pays about 2.5 times as much as other job openings.

Karnik: NASSCOM estimates suggest that private firms have spent close to $4 billion in setting up a world class, large and spatially dispersed telecom infrastructure in India - this includes connectivity by fiber optic cable and satellite. The cost of an international half-circuit (India-U.S.) is approximately US$1,900 for a 2 Mbps link.

Karnik: The software services and BPO services export industry in India has grown its revenues from $6.2 billion in 2000 to $7.7 billion in 2001 and $9.5 billion in 2002. In 2003, NASSCOM estimates the industry will grow its revenues to $12 billion.

Click Here to read the full interview.

Extracts from the interview with Marcus Courtney, an organizer with the Washington Alliance of Technology Workers, an affiliate of the Communications Workers of America, and Ron Hira, a professor of public policy at the Rochester Institute of Technology:

Courtney: I have yet to find any compelling argument from pro-globalization cheerleaders that can point to how in the long run this will create more jobs and greater opportunity. If exporting jobs creates more jobs or saves jobs, why does our manufacturing sector continue to decline in employment?
Aron: I often hear an argument from senior executives who favor outsourcing. They maintain that in many cases, migrating some operations to lower-cost labor regimes actually results in saving jobs. That argument runs thus: When some jobs move to lower-cost centers, that move makes other parts of the company viable and results in saving several other jobs. For instance if a retail bank with a 1,400 person back-end operation that supports product lines that are barely profitable (or are unprofitable) moves 400 seats overseas to contain and manage its costs better, then the remaining 1,000 jobs are saved. If the company is forced to run all its operations from within the U.S., then it would have to withdraw from several product lines because it is unprofitable to compete in those markets.

This would have a two-fold impact: First, workers would be laid off from those unprofitable product lines, and second, consolidation would occur. A few large financial services companies (retail and corporate banks, insurance firms, brokerage houses) would grab most of the market share. As we know, the direct impact of such consolidation is the loss of jobs through centralization of operations. Outsourcing of services allows firms to stay competitive and saves several jobs that remain. How do you react to these observations?

Hira: This probably does happen in some cases, but my sense is that this is the exception and not the rule. I’d love for someone to actually collect statistics on this and give me a real and verifiable example. Companies have obvious interests in all of us believing that this is the norm rather than the exception. I’m willing to bite if provided a better sales pitch, but I doubt that is coming.

Click Here to read the full interview.

2003-09-26T04:23:00.000-07:00

Issues in getting small businesses to send work offshore

Why do small businesses, who are quite comfortable in outsourcing tasks like payroll processing to US companies like Paychex and ADP, not so keen when it comes to sending some of their work to cheaper offshore locations like India?

An article in the latest issue of Knowledge at Wharton seeks to find out. Click Here to read the article.

2003-09-26T03:37:00.000-07:00

The opportunity in patenting services

Patent writing and evaluation services are markets set to boom, says Alok Aggarwal, the Co-founder and Chairman of BPO firm Evalueserve.

In an interview to Knowledge at Wharton magazine, Aggarwal points out that some 300,000 patent applications are filed in the western world each year constituting a $5-7 billion market. Outsourcing of patent writing services could significantly lower the cost of each patent application—now anywhere between $12,000 and $15,000 apiece—which would help expand the market. “There are so many small startups that don’t want to file their patents. If costs came down to $4,000 or $5,000, they might consider doing so,” Aggarwal says in the article.

His company, as can be expected, is already tapping into the opportunity by providing services like patent writing, evaluation and assessment of their commercialization potential for Western law firms and start-ups.

Click Here to read the full Knowledge at Wharton article.

2003-09-26T03:31:00.000-07:00

How Indian companies are climbing the value chain

BPO services companies are moving beyond call-centers and routine data-crunching tasks toward higher-end services, says an article in the latest issue of Knowledge at Wharton. The higher-end functions being "offshored" these days include information research, financial portfolio analysis, customer data mining, statutory reporting and inbound insurance sales, the article says quoting an executive of a management consulting firm.

The Bermuda headquartered, Gurgaon back-ended, and New York front-ended BPO services firm Evalueserve is cited as an example of a company that's moving up the rungs. "Evalueserve provides services like patent writing, evaluation and assessment of their commercialization potential for law firms and entrepreneurs. Its market research services are aimed at top-rung financial services firms, to which it provides analysis of investment opportunities and business plans. Another major offering is multilingual services -- Evalueserve trains and qualifies employees to communicate in Chinese, Spanish, German, Japanese and Italian, among other languages. That skill set has opened market opportunities in Europe and elsewhere, especially with global corporations," the K@W article says.

The company's offshore-onsite mix is also highlighted as a strength. "Evalueserve’s model works on a mixed platform where anywhere between 50% and 80% of the work is handled out of an Indian facility, while the rest is done at the client’s location. For example, a patent filing assignment from a U.S. corporation may involve the Indian staff writing the patent in English or say, Japanese, and evaluating its commercial potential. But the client or its law firm would do the actual filing in the US".

The article also quotes some examples of recent "value-added" projects carried out by Evalueserve:

• Evaluating the commercial prospects of inventions in Russia and China. Evalueserve’s client, which specializes in extraction of intellectual property from Russia and China, was hired by the US Commerce Department to analyze such inventions with the objective of keeping such technology out of the “wrong” hands.

• Research for a hedge fund’s database, tracking financial statements of 2,300 companies.

• Research and analysis of value-chain segments and industry developments for a market research firm specializing in IT and telecom.

• Market forecast studies for an OTC drug worldwide for a research firm.

Click Here to read the full Knowledge at Wharton article.

2003-09-26T03:03:00.000-07:00

Outsourcing of Wall Street research

"Wall Street firms are increasingly turning to India for low-cost help to crunch numbers and research industries", says a report in the latest Far Eastern Economic Review.

As the report points out, financial research is eminently outsourcable and "offshorable". A large amount of the work that goes into putting together a research report--earnings forecasts, stock comparisons, industry backgrounds--can be easily (and cost effectively) done in India.

The challenges, as Joseph Sigelman, co-CEO of OfficeTiger, points out in the article are in getting processes into place. In the first 3-6 months of the outsourcing contract, the client's productivity can actually drop, before climbing. Client concerns about confidentiality also require a series of extra measures. "(At OfficeTiger) no employees except senior managers are allowed to bring cellphones into work. There are no CD-ROM drives on the computers and printing is strictly monitored. Employees are instructed not to talk about their clients, who in some cases are competitors," the FEER report says.

The FEER reporter has been filed by by Joanna Slater out of Chennai, India. Why Chennai? Because that's where some of the leading BPO firms focussed in this area--companies like OfficeTiger and Irevna--are based. (Incidentally, even other categories of research firms--like the market research firm Frost & Sullivan--have their Indian operations based out of Chennai.)

Click Here to read the full FEER article.
(Free registration required)

2003-09-22T20:06:00.000-07:00

GHCL to acquire additional 7% stake in US BPO firm

The Ahmedabad-based Gujarat Heavy Chemicals Ltd (GHCL) is to acquire an additional 7% stake in US-based BPO firm Colwell and Salmon Communications Inc in October, reports Economic Times. GHCL had acquired a 69% stake (for about Rs.11 crore) last year.

Colwell and Salmon Communications provides tele-marketing and market research services. It reported revenues of $6.8 million in FY03, a 28 per cent increase over the previous fiscal year. The company's Indian JV with GHCL, Colwell and Salmon Communications (India) Ltd, has recenbtly set up a center at Noida (near New Delhi) and is catering to existing clients of the US firm, the ET report adds.

Click Here to read the full ET report

Click Here to visit the web site of Colwell and Salmon Communications (US)

Click Here to visit the web site of Colwell and Salmon Communications (India)

2003-09-18T02:15:00.000-07:00

Profile of the healthcare BPO segment

Cracking a matrix - Businessworld

2003-09-07T19:42:00.000-07:00

Teleradiology presents big opportunity

The estimated 20-30% shortage of radiologists locally is prompting US medical institutions to tap radiologists based in India, says a report in Economic Times. Under these contracts, qualified radiologists in India interpret X-rays and other radiology data transmitted from US hospitals using high-speed communication links.

Small radiology companies as well as larger firms like the Manipal Group, Apollo Hospitals, and Wockhardt, are actively looking to tap this opportunity, the report added.

Click Here to read the full ET report.

2003-08-06T21:52:00.000-07:00

Businessworld's BPO Status Report

Businessworld magazine did a comprehensive cover story on the BPO industry in its issue dated August 04, 2003.

The article covered, among other aspects, statistics on the industry's size, winners & losers, and the sectors which held the most promise.

Some extracts:

"As on 31 March 2003, the sector employed 171,000 professionals. It has $1 billion invested in it, creating about 100,000 smart cubicles in 7.5 million sq. ft of space. And it generated revenues of $2.3 billion in 2002-03."

"The Indian BPO story is replete with such successful examples--and also with abject failures. Around the time OfficeTiger was crafting its success in Chennai, another Chennai-based company, Brigade, was busy writing its own epitaph.
Brigade made a series of errors. Soon after it got its first $50-million infusion of capital from General Atlantic Partners, Brigade went on a mad spending spree. By 2001, it was burning cash at a rate six times that of its revenues. An office setup in the US saw the company employing 162 marketing people even as its delivery centres in Chennai and Hyderabad had hardly taken root.

By April 2002, its attrition rate was a whopping 168% a year. It changed three CEOs and drove down billing rates to such an extent that operations became unviable. Once a flourishing 1,100-men operation, the company is now down to just 450 employees."

Click Here to read the full Businessworld report.

For the story in graphics, see:

Listing of Top Companies

Companies that are "feeling the heat"
(includes FirstRing, which has since been acquired by ICICI-OneSource)

...and the list of reasons "why they are losing"

The most promising sectors by market size.

Other countries for offshore BPO work where Indian companies can set up disaster recovery centers.

2003-07-23T21:01:00.000-07:00

Engg. design cos. make a mark

Indian companies have started to make a mark in the market for outsourced engineering design services, reports Economic Times. And it is not just large companies who get to play in this $7-billion.

"Several smaller Indian software companies like Hyderabad-based Infotech Enterprises, Bangalore- based Plexion, Quest, Easitech, Geometric Software, Rolta and Axis are quietly working with global majors in the cutting edge engineering design space," the ET report says.

The sector has also been receiving the attention of private equity investors. Plexion Technologies recently received a second round of funding from J.P.Morgan, while Quest is reportedly in talks with VCs like the Carlyle Group.

Click Here to read the full report.

2003-07-23T02:38:00.000-07:00

Funny stories from Call Centers

A slightly dated article (October 2002) in Wired magazine provides some nice (true-life) humor arising from interactions between Americans and "far away" call center executives in India.

An employee of TransWorks spoke to a man who kissed him over the phone many times before apologizing, "Sorry, if you are not gay. Is there anybody else in your company who is?"....

A female call center agent once dialed an American home in an attempt to sell a caller ID system. The man told her, "Aren't you the girl who lives next door? Can you see me? I am naked."

An American doctor client of medical transcription company Selectronic had said, "the patient's salary is twenty grand." The Indian transcriptionist typed, "The patient's salary is twenty. Very grand." Another worker wrote that the patient was "a base reporter" when the doctor meant "ace reporter." Similarly, a doctor's analysis, "He is fond of marijuana," became, "He is fond of Mary Yuvane." And "the incident occurred while at Macy's Thanksgiving parade," became "the incident occurred while Macy was giving thanks to the parade."

It's no wonder that a UK-based film maker is reportedly making a comedy film with an Indian call center as its setting.

Click Here to the read the full Wired article.

2003-06-21T20:24:00.000-07:00

Raman Roy on the evolution of India's BPO industry--and his baby, Spectramind

In this 2-part interview to Knowledge@Wharton, Ramon Roy, Founder & CEO of pioneering third-party BPO firm Spectramind, talks about the evolution of India's BPO industry. Especially interesting are his thoughts on why third-party BPO firms can succeed in the face of the trend among MNCs to set up captive centers.

Here's just one extract from this fascinating interview:

K@W: What was the principal objective with which you started Spectramind, and to what extent has this been satisfied?

Roy: We had very clear objectives in setting up Spectramind. We wanted to demonstrate what could be done out of India. We were all big believers in the capability of the Indian workforce. I wanted to be able to tell my grandchildren, “Your grandfather played a role in creating this company.” I’m not trying to say we weren’t trying to make money—that was a driver as well. But that was not the main driver. It was the idea of creating something new in India, and the ability to say that we contributed to its creation. That is why partnering with Wipro was a movement in the right direction. There were some things we could do as a start-up – but this business requires deep pockets. It requires something more than business acumen, and Wipro has played a big role in bringing that to the table.

Click Here to read Part I of the interview.

Click Here to read Part II of the interview.

2003-05-25T22:49:00.000-07:00

Now, the UK's Telegraph worries about loss of local jobs

While the topic of the "backlash" is getting quite boring, what makes The Telegraph article reasonably interesting is that a) it is well written, and b) it throws some new numbers from a study of the efficiencies of financial services outsourcing conducted by accounting and consulting firm Deloitte & Touche. (*At last*, the media has found an alternative to the mysterious Forrester Research report--which supposedly says 3-m plus US jobs are set to go "poof" becuase of offshore outsourcing.)

(Some extracts by way of general background--ie, stuff that everyone--at least, in India--knows about:)

When the chairmen of the big UK banks and insurers get together, all they want to talk about is how fast they are relocating operations to India - and although they are all gung ho about it, they are slightly anxious about whether the Government will weigh in to slow the trend....

Centres in India handle the processing of student loans, queries about utility bills for Powergen and flight bookings for British Airways. A series of other British companies, including BT, HSBC, Prudential and Aviva, are shifting their call centres to the world's biggest democracy....

The big question is how America and Britain will cope as these forms of employment become extinct in their home economies. (Deloitte & Touche) estimates that 2m jobs in financial services alone are likely to move from developed economies to emerging nations in the next five years. Across all industries, the exodus of services jobs could be 4m....

(Here come the portions with the numbers:)

By 2008, financial services firms are expected to have transferred $356bn, or some 15 per cent of their total cost bases, to less developed countries, according to a recent study by Deloitte.

This would equate to annual bottom-line savings of $138bn, or an average of $1.4bn for each of the world's top 100 financial services companies. For leaders such as Citigroup and HSBC, there could be savings of two or three times that level.

By any measure the potential cost-savings are enticing. Processing costs, for instance, are estimated to account for about 20 per cent of a retail bank's total cost base.

A conservative saving of 20 per cent of that could lead to a 4 per cent improvement in the banks cost/income ratio - a key measure of efficiency - and a 2.5 per cent boost to its return on equity, according to Mercer Oliver Wyman, the consultant. In turn, these benefits could lead to an increase of 10 per cent to 12 per cent in the market value and share price of the average bank.

So banks such as Citigroup and HSBC are transferring even more jobs. Citigroup now employs 3,000 people in India in call centres and processing operations in Mumbai and Chennai. Analysts argue this has helped the group become the world's most profitable financial services firm: its revenues have grown by $35bn in the past five years, while costs have increased by just $12bn.

(The article's conclusion:)

But while the debate rages, it is clear that the economic forces at work are unstoppable. "We have to relocate these functions to India," says the chairman of a large British bank. "Not only are the running costs a fraction of what they would be here, but the quality of the workforce is significantly better. Taking advantage of that is a no-brainer."

(Extracts end)

Click Here to read the full The Telegraph article.

2003-05-25T19:46:00.000-07:00

Why the critics of offshore outsourcing should relax: Conference Board

I *finally* came across an article that places the much bandied-about Forrester Research numbers (saying 3 million+ Americans will jobs due to offshore outsourcing) in proper perspective

Fortune writer David Kirkpatrick in his column titled "Net makes job exports easy", as expected, quotes the Forrester Research "estimates that 3.3 million US jobs will move offshore by 2015". But, thankfully, he also spoke to Ms.Gail Fosler, chief economist at research firm Conference Board, who says "the critics should relax". Fosler doesn't think that the trend will significantly hurt US employment. Fosler also points out that the US services sector loses about ten million jobs every year even as it creates another 12 million. "So a couple hundred thousand jobs a year going to India is a drop in the bucket," she says. In addition, this new means of holding down costs will combat inflation, benefiting consumers. And it will help US companies remain competitive in an increasingly brutal global marketplace.

(Wow!)

The Fortune column also gives a lot of prominence to the "Better quality of work" delivered by offshore workers.

(Extract:)

BPO doesn't just save money; it generally results in better work. It attracts the top people in the new countries, since the jobs tend to pay more than most local positions. Turnover is low, and people work hard to improve their skills.

"The shock has been that the quality of the work's better," says Dennis McGuire, CEO of TPI, an outsourcing consulting firm in Houston. "It reminds me of back when we assumed that if something was made in Japan, it was worse quality. We were wrong."

(Extract ends)

Click Here to read the full Fortune article.

2003-05-10T02:32:00.000-07:00

Why Warburg Pincus finds the BPO business attractive

Some interesting extracts from an Knowledge@Wharton interview with Wolfe Strouse managing director at global private equity firm Warburg Pincus which has invested in Indian BPO company WNS

"In July 2002, WNS acquired a company in Britain called Town and Country, which provides claims processing services to the auto sector -- largely to self-insured fleets -- using an advanced technology platform. The company processes claims, but also it provides a preferred network of repair shops. We have moved some of the claims processing as well as the maintenance of the network to WNS operations in India. We have seen tremendous efficiencies from both the technology enablement and also from the highly skilled labor in India. Similarly, there may be processes that are not yet technology-enabled. One can technology-enable them and layer them with cheaper, better resources to get a doubly positive effect.....

Outside the technical support help desk area, I don’t think voice is the logical thing to move. For technical support or areas that have a large technical community it makes sense, but some of the customer service stuff doesn’t make a lot of sense. I think there are easier processes to focus on.

In the future, data intensive tasks such as mortgage processing and claims processing will move offshore. Claims processing in the healthcare side may not move immediately because it is complex and people haven’t figured it out well here. Other insurance back office functions such as subrogation or recovery will also move out over time. We have one customer at WNS for whom we are running their entire SAP financial systems out of India: accounts payable, treasury functions, etc. It’s like their whole finance department is in India. I think you will see more such arrangements, where control and strategic level remains with the customer but the processing piece moves offshore.

Click Here to read the full interview.

2003-04-28T00:56:00.000-07:00

US, Australian states to pay cos. to keep jobs local

eFunds to open center in New Jersey, shift jobs from Mumbai

Financial services-focussed BPO firm eFunds Corp. is to shift call center jobs from its Mumbai office back to the US. In response to criticism from local politicians, the New Jersey state government has asked eFunds to open a new center in the state to provide support services for its unemployment welfare program. The state government will now pay eFunds 20% more for the outsourced services than envisaged in the original contract.

eFunds' new center at Camden, New Jersey is expected to employ about 10 workers earning $10-12 an hour as against the $2-3 earned by its agents in Mumbai, reports Rediff.com. To compensate for the increased cost of operations, the New Jersey government will pay eFunds $73,800 a month over and above the current monthly payment of $340,000.

Under its original contract beginning in February 2002, eFunds was redirecting toll free calls from New Jersey residents seeking information about electronic welfare or food stamp programs to its contact center in Mumbai. Upon reading local media reports about the contract, New Jersey state senator Shirley Turner had proposed a bill banning outsourcing of state government work to overseas locations. The bill had inspired similar legislation moves in other US states as well.

For more information:

New Jersey decides to move call center from Mumbai to Camden
Rediff.com

New Jersey is microcosm of protectionism debate
IDG News Service

Australian state might subsidize Telstra for not outsourcing

Prompted by a strident campaign in a local newspaper, Australia's Victoria state is offering to subsidize the country's largest telecom company, Telstra, to employ local IT workers rather than outsource work to Indian companies. Steve Bracks, Premier of Victoria, has said the State Government is willing to offer the subsidy since it would have "long-term benefits (for) employment in Victoria".

Victorian newspaper, Herald Sun, published a series of reports last week "revealing" how Telstra was using about 100 Indian IT workers from Infosys Technologies and Satyam Computers "on sweatshop wages" of $820 per month (as against Australian IT workers who would earn about $5000 a month). "The telco giant-- which is on track to report a $3.66 billion profit this year--would save $15-$18 million on the deal," the paper reported quoting an internal Telstra memo.

For more information:

Telstra worker tells of pay woe
Herald Sun

Telstra, Indian companies deny 'sweatshop' claims
The Sydney Morning Herald

2003-04-10T21:22:00.000-07:00

BT responds to union protests on move to set up 2 contact centers in India

UK telecom giant BT has been facing protests from its unions ever since it announced plans to open contact centers in India. The union had conducted demonstrations in front of the company's UK contact centers and threated to strike work. Click Here to read Business Line's report (dated Martch 21, 2003) on the union protests and comments from union leaders.

In a press release titled BT Retail Chief Criticices Union Stance Over India the company's CEO, Pierre Danon, hit back at the union protests.

Here are some intresting points regarding the Indian centers made in the press release:

 the contact centres in India will be at least of the same standard as those in the UK and they will be managed by BT Retail, using its own systems, processes and technology;

 they will be superb working environments and the people will be paid at the upper quartile within the information technology-enabled services market in India;

 BT Retail's partners, HCL E-serve Technologies and Progeon, are both highly respected employers, who meet all BT Retail's requirements in terms of ethical trading and working practices.

In BT's March 7 press release confirming the move to set up the Indian centers, Danon had laid out the logic for the move.

"There are many reason why BT Directories has chosen to take work out to India. As a result of deregulation, we now face intense competition in this sector. In other countries, such as Ireland and Germany, established providers like BT have lost up to 40 per cent of market share," he said. "We will not allow that to happen to us. By trimming our costs we can remain very competitive on price and also protect the long term jobs of BT Directory operators in the UK," Danon added.

The Indian centers will initially handle parts of BTs directories and conferencing work. BT Retail is also considering moving parts of its other operations to the Indian contact centers, but no final decisions have been made yet.

BT Retail has set three criteria to identify future projects that could be outsourced to India:
 previously outsourced work which can be brought back in-house (like business telemarketing)
 existing work which is uneconomic to carry out in the UK (such as non-automated reservations for BT Conferencing audio calls)
 new work which can only be commercially justified in India (such as reminder calls to people who have forgotten to pay their bill)