The Hindu Business Line : BPO industry due for mid-course correction

THE euphoria in the BPO industry soars with the Financial Times reporting the news of J.P. Morgan Chase's plans to hire 4,500 graduates in India with the aim of moving 30 per cent of its back office and support staff at its investment bank offshore by the end of 2007. However, the fundamental question is whether this low-end job transfer will benefit good society in the long run.

In recent years, India has emerged as one of the most coveted destinations for business process outsourcing and has to its credit a host of Fortune 500 and Fortune 1,000 companies that have set up their BPO units here. Over the years, the Indian BPO industry has undergone a huge expansionboth in terms of workforce and profit margins.

According to a recent survey, the sector employs 171,000 professionals and generated revenues worth $2.3 billion in 2002-03.

However, one cannot gauge India's position in the outsourcing industry from these estimates alone. Globally, the outsourcing market stands at $773 billion and India's share is about 0.46 per cent or $3.6 billion, which places it on the fringes of the industry.

To increase its share in the global market, India must move beyond the present nature of its BPO projects — simple transaction processing and largely voice-based operation.

A key feature of the meteoric rise of BPO industry in India is the comparative advantages the country has over its Western counterparts such as availability of highly skilled, cheap and English-speaking work force.

However, this may soon cease to be India's sole advantage as other Asian countries are fast creating similar facilities and cost advantages. Near-shoring — shifting jobs to closer destinations — is another potential threat to India's flourishing BPO industry.

Offshore consulting companies believe that near-shoring will pick up pace sooner than later as more companies begin to recognise the importance of factors such as security, better cultural affinity, proximity, faster communications and so on.

Therefore, a mid-course correction is imperative for the Indian BPO industry to maintain and accelerate its growth and survive competition.

For all the concern over China's image as potential competitor, we must not forget its role and India's in the global value chain. While India must expand its operations to knowledge-process outsourcing and grow as KPO hub, China can emerge a manufacturing hub.

A paradigm shift from simple transaction processing to more niche work will help India achieve lasting growth, and take it from being a cost-cutting centre to a Centre of Excellence or Competence Centre.

For this, India needs also to make certain strategic policy changes. The core of a knowledge-based industry is the people and its success depends on the quality of available talent.

Therefore, the BPO industry should start investing in the country's education system and work in collaboration with various academic institutions to set up the "knowledge-lab" for the industry. GE's Edge Lab at the University of Connecticut, the Laboratory of Financial Engineering (LFE) at MIT, the Castle Lab at Princeton are some of the prime examples of such long-term collaborative relationship between academia and corporates.

Investing in Indian academic institutes will not only enhance the credibility of the Indian education system but also create a pool of high quality talent for the BPO industry. In the long term, this will help the industry to quell attritionby providing an alternative career to employees.

Otherwise, a time may soon come when the talented lot of BPOs are left jobless and without any specialised skill. This less-appealing side to India's BPO industry warrants immediate attention to prevent a dangerous downward spiral.

(The author is Associate Professor, Madras School of Economics)