Wage bills twist knife into outsourcing companies

Wages go up 20-30 every year in BPO industry, which can diminish the labour-cost advantage India enjoys over US

Sting operations and worker8217;s threats to unionise may tarnish the image of the 6 billion-exporting call centre industry, but rising wages may extract a greater and more real toll in years ahead.

According to new data, wage inflation, or the rate at which wages go up every year in the Business Process Outsourcing BPO industry, is at 20-30 per cent in India. At this pace, in another decade, Indian BPOs will reach US wage rates, eliminating a key advantage India has as an offshore location.

8220;We see wage inflation going significantly against India. It is already higher in India than the rest of the world by 50-60 per cent. This could twist the BPO marketplace in entirely new ways,8221; says S. Sabyasachi, senior director, NeoIT, a offshoring consulting firm.

NeoIT8217;s latest research report, a City Competitiveness Index, shows that the National Capital Region NCR, Bangalore, Hyderabad, Mumbai, Pune, Chennai and Kolkata fare better than at least 17 other cities worldwide competing for offshore contracts from the US, Japan and industrialised Europe.

The seven Indian cities beat Krakow, Warsaw, Sao Paulo, Prague, Shanghai and Budapest for now, but may not forever if the wage bill goes up the way it has. When coupled with the lack of infrastructure and a new perception that sensitive data can be compromised in India the odds may turn significantly against it, the report8217;s authors say.

More than 60 companies all over the world were interviewed for their study, some of which include NeoIT8217;s clients, a majority of which are Fortune 100 firms.

According to Abhishek Sharma, senior analyst, advisory services, NeoIT, 8220;Five years down, we see a threat to Indian cities8217; position because of wages, but also because of flagging infrastructure and the security threat perception. Though we believe that at least five Indian cities will stay in the top 20 worldwide locations.8221;

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In the past, NASSCOM, which represents IT Services and BPO companies in India, has underplayed the impact of rising wages, pointing out that entry-level salaries have risen by 4-7 per cent only this year. But NeoIT already finds some negative impact 8212; such as in the way BPOs are farming out to smaller cities. Agent entry-level salaries in a big outsourcing outfit in New Delhi, for instance, are already 30 per cent higher than at a smaller company in Ahmedabad or Jaipur, according to their findings.

8220;And the gap between middle level managers8217; salaries and an agent8217;s has been tracked at 30 per cent even within one company in the same big city,8221; says Sharma.