The Hindu Business Line : ‘Rural shoring’

Though commonalities and differences abound between India and the US, the world’s two largest democracies, one thing about them that is strikingly similar is their cost-cutting strategies. In these times of recession, any form of cost-cutting will be a welcome move but most companies do not want to lose focus of the long-term interest completely. Hence, they are looking for sustainable and innovative ways of doing it.

Cross-Sourcing

The mantra is quite simple, go rural and cut costs. US firms such as Xpansion are already working on a cross-sourcing model and outsourcing projects to rural locations such as Corsicana and Kearney. Moving projects to rural areas translates to lower operating cost — the differential could be as high as 20-40 per cent vis-À-vis locations such as Los Angeles — thanks to lower cost of living. Also, other factors such as cultural spirit and strong work ethics among rural population have also been cited as reasons for this move.

However, experts rubbish the talk of this phenomenon impacting outsourcing to countries such as India as they feel that despite the cost-advantage rural sourcing cannot be the entire umbrella of operations.

India scenario

A similar trend can be observed in India too. Infosys BPO, the back-office service arm of Infosys, plans to tie up with service providers in rural areas and smaller towns for its domestic operations. Wipro BPO is also said to be exploring delivery tie-ups with rural service providers. Infosys BPO and Wipro BPO were servicing only global clients, but now because of the slump they are looking to the domestic market as well.

The average billing rate for domestic clients is around 30 per cent of that for global clients. This makes it almost impossible to service domestic clients from bigger centres in India. Hence, rural outsourcing provides a solution. Companies also want to cash in on the technological revolution happening in rural India.

Also called ‘rural shoring’, the attempt is to shift part of the BPO work to rural areas and cut costs. Firms such as Rural Shores, Xchanging, HOV Services, Hinduja Global Solutions, Sai BPO and even bigger players such as HDFC (which has picked up a 26 per cent stake in Rural Shores) have adopted the ‘rural shoring’ model and set up BPOs in rural or semi-urban areas such as Bagepalli in Karnataka, Rayalaseema (Andhra Pradesh), Purnia (Bihar) and Barala (Uttar Pradesh). Similar to the American example, in India too this model offers advantages such as local language and proximity to customers’ base.

Go rural

It is not only the BPO industry that has gained from its rural forays. Bharti Airtel is one of the companies to have profited from a rural strategy. Its net profit during October-December quarter jumped 25 per cent compared to the previous year, way ahead of its competitors.

A chunk of it can be attributed to its rural strategy with 57 per cent new customers coming from rural areas. Bharti Airtel based its strategy on the model of availability, awareness, accountability and affordability. It launched a project to set up Airtel service centres in four lakh villages across the country and target two-third of new mobile connections from rural areas in the next year.

Companies in India must take cognisance of rural economy not being predominantly agrarian anymore. The contribution of agriculture in the rural GDP has fallen to 41.6 per cent whereas that of industry and services combined has risen to 58.4 per cent. Rural population is attractive both in terms of the new breed of cheap service providers and vast untapped customer base; typically characterised by lower operating costs and better margins. The cost-advantage derived as a result of this rural push can help companies not only beat the recession but also position themselves for the future.

(The author is Area Chairperson – Human Resources, Alliance Business School, Bangalore. blfeedback@thehindu.co.in)

More Stories on : Outsourcing | Human Resources | Rural Development

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
India-China confluence: Ushering in a new golden era

‘Rural shoring’

One tax, two assessments

Economic Survey pointers

The local face of globalisation

Ways to govern education

What, me worry?

Economic Survey

Rail Budget