The secretary of Britain’s Amicus trade union, David Fleming, recently suggested high profile decisions to relocate call centres from India to Europe may spell the end of the offshoring trend that has swept jobs to the subcontinent. His comments are well wide of the mark, certainly in the near term, but do highlight questions over how Indian outsourcing providers will come to terms with emerging threats to their long-term position.
At stake is the subcontinents only world-beating industry which has helped bolster the middle class, and has grown more than three times faster than the overall economy. Business Processing Outsourcing companies directly employ a million Indians and earned $6 billion in exports last year.
The risks are mainly endogenous. Double-digit wage inflation for qualified workers, combined with chaotic transport networks, mean big cities like Bangalore could lose their low-cost competitive advantage within the next five to 10 years, according to Graham Pascoe, a partner at PricewaterhouseCoopers.
He predicts largely untapped second- and third-tier conurbations will take up the slack. But that will depend upon the success of private industry and the government in broadening the potential labour base. The Reserve Bank of India is among those who have called on the government to boost spending on schools and universities to protect the future of the outsourcing sector.
“The real challenge comes not now but in four or five years, that’s the education challenge, how can they really deliver the kind of skills they will need?” asked Jon Thorn, manager of the India Capital Fund. “Unless there’s some serious investment in India to support this growth it will run out of steam.”
Thorne is dismissive of the competitive threat posed by rival countries like China, Vietnam and the Philippines in the business processing arena.
“Even combined I think they’d have only 20% [of the capacity of India]”, Thorn told Emerging Markets. “India has a historic shot at this; for the next 5-10 years, in terms of BPO, nothing comes close.”
All the biggest Indian BPO providers, including Infosys, Wipro and Tata Consultancy Services have successfully positioned themselves to maintain growth going forward, according to Thorn. However, those Indian-reared companies are clear that their home country needs to make a business case for their presence.
“No country should take it for granted,” said Vrinda Walavalkar, a spokeswoman for ICICI Onesource, the fifth biggest Indian BPO provider, adding that the education system “is not working as well as we would like.” Nevertheless, while the company would be willing to shift jobs across borders, she is clear that other destinations don’t currently pose much of a challenge.
To combat wage inflation and price pressure Onesource and its peers are moving up the value chain – currently about 60% of the Indian industry is centred on low-margin call centres. As a result, they have had to spread their tentacles internationally to support clients who want more complex processes performed closer to home.
Accenture, one of the biggest names in global outsourcing, is confident that the trend is towards one-stop shops that can providing clients with a full range of services. In other words India itself can continue to dominate in the areas where its traditional advantage lies, but its companies will also have to establish themselves abroad to win some of the more lucrative contracts.
“India will still get its unfair share of the global BPO market but because of the increasing complexity of the work other countries will be increasingly involved,” said Kris Wadia, a partner at Accenture’s Global Delivery Network, which in recent months has opened its sixth centre in India but also expanded its operations in central Europe.
The growth of Accenture’s division reflects the dynamism of the outsourcing sector as a whole; employment at its delivery centres has jumped nearly 5-fold in the past three years, with 60% of the 30,000 staff based in India.
And despite the political posturing of US and UK trade unions like Amicus, Wadia is confident that more and more companies will follow their business sense along a trail that often ends in Mumbai, Chennai or Bangalore.