The Hindu Business Line : Will the BPO party last?

Sudden denial of income, regardless of the cause, creates unhappy consequences. Employees of the BPO (business process outsourcing) and call-centre industry may be staring at such a prospect.

Foreign companies outsource work to Indian firms because as it benefits the former financially. They would not hesitate to move wherever a cheaper option emerges, with acceptable level of quality. Competition is emerging for India from the Philippines, Indonesia, China, and so on. Statistics show that wages in India have been rising at a rapid rate, from 13.7 per cent in 2004 to 14.5 per cent in 2007.

Data also contradict the popular myth that the average wage rise is high because multinational corporations give higher pay hikes. Actually, the average pay hike given by Indian companies was higher at 14.9 per cent against 14.3 per cent given by the MNCs. In contrast, the pay hikes in Japan, China and the Philippines are 2.7 per cent, 8.2 per cent and 8.4 per cent respectively.

Rising wage levels

Yet, India may soon get priced out of the BPO business that provides employment to thousands of young men and women. This can happen simply because of the rising wage levels. Indian companies get the BPO business because of their cost advantage, primarily the low wages.

But in the anxiety to retain employees, BPO companies have begun to raise salary levels, and if the trend continues could price themselves out of competition. It may be argued that despite the rising wages, there is enough profit for both foreign and Indian companies, but the question is: "For how long will this situation last in view of the narrowing wage differential between India and other countries?"

A fresher joining a BPO outfit, serving a foreign client, could be a smart computer-literate candidate but who has passed just the 12th standard. This employee, called the agent, who is trained in voice modulation will, perhaps, earn Rs 10,000-15,000 a month in six months. His salary will jump to Rs 25,000 the following year, and he could be in line for promotion to Team Lead, the year after.

These are not low figures, considering the profile of the recruit and, yet, the industry has been recording a high rate of employee attrition. Further, employers also offer free transportation, food and many such perks, and even career improvement programmes.

However, there is the lurking fear that as these costs rise, and usually passed onto the principals, foreign companies may start to scout for cheaper destinations, and the Indian BPO bubble could burst.

Market-governed economy

As of now, the companies outsourcing the work are happy as they are saving money; the Indian BPO firms are satisfied too with the profits they are making; and the employees are on top of the world as they are rewarded with good pay and perks. As long as the happy situation continues, it is good for the economy. But for this, somebody must ring the alarm bell to caution the BPO industry on over-exuberance about wages and perks. Else, they risk killing the goose laying the golden egg..

(The author is a former Group Captain, IAF.)