Tension upfront causes fear back-end

IF the dotcom boom was the mantra of the 1990s, the new millennium gave birth to a new dream: Of making India the hub for BPO and ITES. For the uninitiated, that’s ‘Business Process Outsourcing’, and ‘IT-Enabled Service’. In layman’s language, it involves the contracting of IT-intensive corporate backoffices to outside agencies in order to cut costs. Think call centres, or medical transcription, and you have figured it out.

The beginning was promising enough, with Rs 3,000 crore being chalked up in sales over the last three-four years. But after 9/11 and 13/12, which it managed to weather, it is now the border tensions with Pakistan that threaten to derail the industry.

Most top companies in the BPO sector admit of the grave consequences that war clouds or terrorism pose for them. i-flex Solutions became the first company to mention terrorism as a risk factor in the recent initial public offer (IPO) prospectus it submitted to the SEBI. ‘‘Terrorist attacks and other acts of violence or war involving India, the United States and other countries could adversely affect the financial markets, and result in a loss of customer confidence and adversely affect our business,’’ the prospectus said. Wipro Ltd, in its annual report, stated that the rapid economic slowdown and terrorist attacks in the US could be seen as a risk to its business prospects. ‘‘(It) could delay or reduce the number of new purchase orders we receive and disrupt our operations in the US, which could affect our financial results and prospects,’’ it stated.

Infosys, taking into consideration the 9/11 terrorist attacks, says that it has modified its disaster recovery plan. ‘‘Physical security of the various campuses as well as building has been strengthened,’’ it claims in its annual report for 2001-02.

As if all this was not enough, the uncertainities stemming out of the face off between India and Pakistan came along and pushed this industry further into a corner. Says Raja Natesan, vice-president, sales and marketing, Interglobe Enterprises, a company that works in partnership with the some of the world’s leading airlines and is involved in the distribution of the reservation systems, ‘‘The war-like situation has impacted all our activities noticeably. We’ve even had a few potential contracts put on hold. A couple of partners have actually decided to look at other countries as an alternative. So our loss may be a gain for countries like Thailand and the Philippines’’.

According to Nasscom, the apex body for the software industry, Indian companies expected to earn $1.5 billion — largely from the US — from call centre orders by end-2002. As many as 107,000 people, most of them graduates in their early 20s, are employed by these firms.

Before the subcontinental war clouds started gathering, the BPO spurt was looking at the consolidation of the call centre industry by end-2002, generating about 8,000 seats during the year, and projecting 45 per cent rate of annual growth for the next five years. Today there’s a real possibility that India’s biggest competitor in 2002, Philippines — with a comparable cost structure — will walk away with the business opportunities. India’s only ace in this tug-of-war: The quality of service, considered far superior because of the highly trained English-speaking population.

Rakesh Bharti Mittal, head of the Bharti Group’s call centre business at Bharti Infotrak, says that he actually had to postpone the official launch of his 180-seater centre because of the war talk. ‘‘If this kind of thing happens often, this business segment could be in trouble. Our overseas clients could become nervous,’’ he explains.

Says P V Kannan, CEO of the Bangalore-based 24/7 Customer.com, ‘‘After the negative travel advisories, after the second warning was issued by US for its citizens in India, we ourselves advised US citizens who work for our clients to return. We are striving to grow despite this.’’

‘‘The comfort levelwith international clients is certainly low at this point of time,’’ says a Mumbai-based analyst with a domestic brokerage house.

But not everybody believes in doomsday theories. Siraj Irani, senior vice-president of WNS, a leading offshore BPO company, says his company has a talent pool of over 1,500 highly qualified and trained professionals. ‘‘The person heading our business is British, Roy Marshall. And he is still in the country. If foreigners were actually leaving by the hordes, he would not have been here!’’

Irani goes a step further to say that even if Mumbai and Pune — where WNS has its offices — ‘‘get nuked, the company has a Business Continuity Plan in place that ensures the entire work gets re-located to another destination. There is a third location earmarked close to both these cities where work can be immediately shifted,’’ he says, adding that the name of the city is kept secret even from employees, for obvious security reasons.

Raman Roy, president and CEO, Spectramind eServices Pvt Ltd, echoes Irani. Though 75 per cent of his clients located in Australia, UK, Canada and the US, ‘‘we have had no cancellations as yet, though a lot of plans have had to be deferred. But now that the tensions have descalated, we expect things will return to normal.’’ Roy, an old hand at the BPO business with previous stints at GE and AmEx, started Spectramind two years ago and was bullish on the future of this segment. But in the current scenario, there are just a few misgivings.

A study by Nasscom and McKinsey also looks ahead, foreseeing revenues of $17 billion and employment of 1.1 million people by 2008 for the industry. The study said American companies typically add between $20 million and $40 million to their annual profits by contracting their routine work to Indian firms.

Says Sanjeev Aggarwal of Daksh.com e-services, ‘‘The only effect we’ve experienced is that some of our clients have deferred their due-diligence visits.’’ Aggarwal started Daksh with an initial investment of Rs 2 million and is looking at a growth of 900 per cent. But despite the bravado, there is a lurking nevousness.

GE Caps and American Express, the two major financial companies who have their back offices in India, are untouched by the talk of war. This is because both do the BPO for their in-house needs rather than for clients. GE Caps, in fact, has planned to add two more sites to their list, employing an additional 2,000 people for the purpose, sources said.

What really matters is that despite the sudden setback the industry bigwigs are still optimistic. Those in the know paint HR, finance and accounting, transaction processing, content development, engineering, design, remote education, market research, data search, and network consultancy as the hot components of the BPO market in 2002 in India.

The future trend, predict experts, will be the outsourcing of the whole process, not just a single function. For instance, companies will outsource the whole HR department, as opposed to only their payroll function. So, as capabilities develop and Indian companies mature, they will move up the value chain.

But war clouds and terrorist attacks do not augur well for an industry still in its nascent stage. A war like atmosphere could sound the death knell even for established industries.

(with Santanu Ghosh, Arundhati Bakshi in New Delhi and Rajesh Menon in Bangalore)