At a recently-held Confederation of Indian Industry (CII) seminar on outsourcing in Mumbai, there were a fair number of people like Sunil Sharma (name changed). Sharma’s job of running a Business Process Outsourcing unit (BPO)is not an easy one. His industry, already dogged by high attrition rates due to odd working hours and a perceived lack of career growth, faces a new set of problems these days. A threat brought in by MNCs who have set up their own captive BPO units—facilities that handle outsourcing work only for their parent firms. Sharma was at the seminar looking for some answers. And he was not the only one. The past few months have seen a spurt in the number of MNCs like Prudential, Morgan Stanley, H-P, and British Airways setting up their own captive BPOs in the country. These units carry out the back-office work for their parent companies. For example, Prudential, one of the biggest Insurance firms in UK has a 700-seater call centre. So, when a Prudential Insurance policy holder calls up a toll free number in UK, he is handled by a call centre agent based out of Mumbai. What is outsourcing? Big firms in the US and Europe get part of their work done by other smaller firms to save cost and time. The nature of work varies. For example, a credit card company in the US can outsource its customer care services from India. So, a customer calling a toll-free number in the US for any enquiry related to his card will be answered by an agent sitting in India. Why India? India has a large pool of English-speaking people. Manpower and infrastructure cost in India is also low. And how does it benefit the parent company? Simple, India being a cheaper destination, shifting most back-office work here gives the company enormous cost advantages. Which explains the rush towards Indian shores. And also makes home-bred BPO units or Third Party vendors fearful, as they witness their business opportunities dwindle. Seeing RedNearly every big IT company—Wipro, Infosys, TCS—has a BPO arm and many Fortune 500 companies outsource from them. The IT Enabled Services Industry (ITES), which includes BPO, is today one of the country’s fastest growing sectors, contributing almost 25 per cent to the total IT software and services exports. With an enviable growth rate of 59% in the first half of this fiscal, everyone wants to be part of the BPO bandwagon.But what does the present trend of captive centres indicate? Could this be a serious dampener for Third Party vendor prospects? Explains Ravindra Datar, principal analyst, Gartner India, “Organisations set up captive facilities because their decision makers are not open to outsourcing in principle, but are convinced of the benefits of going offshore (a cheaper destination).’’Says R.K. Rangan, MD, Prudential Process Management Services, “By setting up captive units offshore, the parent company prevents the huge uproar against job losses in their own countries. The captive centre always becomes part of the parent firm’s cost-saving drive.’’Besides, he points out, ‘‘Investment on staff training at these centres is huge. So it only makes sense for a parent company to invest that much in its own unit.’’Wake-up CallUnfortunately for third party BPOs, the numbers speak out louder. According to Nasscom, captive units have increased their contribution in the total software exports to 32 per cent in 2002-03 from 26 per cent in 2001-02, while the share of third party vendors has gone down from 74 per cent in 2001-02 to 68 per cent in 2002-03.Third party operators have realised that it’s time to wake up to the new reality, and have set about putting their house in order. Some of the key challenges home-bred BPOs face today are people-client and management-related. Two years back, outsourcing was a point-to-point process, where clients would only look for a particular service. For example, if the client was a credit card company, it would only ask for customer care functions to be taken care of by a BPO. But now, a BPO is also expected to research the market, provide feedback and customer care and handle queries—in short, almost act as an end-to-end solution provider. Third party firms like Transworks, in addition to basic services like email management, inbound and outbound voice processes and customer relationship management, also provide services like financial analysis. The industry is also coming to terms with its people-related problems, amply exemplified by the fact that today attrition rates are as high as 40 per cent.“There is no one winning formula to control attrition. It is important for the organisation as a whole to keep a close check on attrition and identify the key reasons why people are leaving, and address these,’’ says Prakash Gurbaxani, CEO of Transworks, a third-party BPO. TransWorks has realised that many employees leave to pursue further education. Consequently, their HR team has created a ‘Learn While You Earn’ programme wherein employees undertake part-time courses.Similarly, at Wipro Spectramind, a Delhi-based third party BPO, employees are encouraged to pursue higher education while working with the firm. Says Dr Keith D’Souza, chief (HR), Epicenter Technologies, ‘‘We identify high potential individuals in each team and give them basic management training so that they can pursue higher studies in management.’’ It is also planning to tie up with institutes for distance education.Domain expertise for these players can also be a key differentiator. Points out Datar, “One thing they need to learn fast is building and demonstrating non-cost differentiators like domain and process expertise, information security, and privacy systems and processes, besides the ability to constantly offer new services which their clients can’t do internally.” Says Gurbaxani,‘‘There is an opportunity for some ‘niche’ players specifically in the areas of insurance, healthcare, mortgage. While costs are the primary driver for companies to look offshore, this soon changes to the ability of a vendor to deliver and successfully ramp-up volumes.’’ It is also a question of size. The bigger the better.quite literally! When selecting a third party vendor, the size of the vendor is always taken into consideration. ‘‘The bigger ones will always survive, because they have the capacity to deliver and can show the volumes to bag bigger projects,’’ points out Vijay Rao, vice chairman, Epicentre Technologies.Future Focus“I believe that in the foreseeable future, there will be enough room for both captive centres and third party service providers to exist in India and prosper,’’ says Gurbaxani. Most third party operators believe that MNCs are just testing the waters through captive units. “The captive units let the MNCs understand the market pressures here. They will eventually get out of the captive units and outsource from the third parties,’’ says K. Vijay Rao, vice-chairman, Epicentre Technologies. Several large foreign companies follow a model of setting up their own captive centres as well as working with third party service providers. Examples are Dell, AOL, Citigroup, e-Funds and so on. This model enables them to acquire a good understanding of the landscape. The view of the majority is new captive centres are bound to come up, as is the possibility that the existing centres will remain captive for a long time. But if third party operators improve their efficiency levels and provide new services, there is a very good chance that the very same captive centres could one day be handled by them.
