India’s business process management (BPM) industry may not remain a low-cost global destination for outsourcing because of rising costs and the large investments needed to be made on tools, technologies and skilled workers.
“I do not think India will remain a low-cost destination for long. One is inflation — we just have to go with it. Second is the input cost — we are looking at things like power and property rentals, which are much higher,” Sandip Sen, Gobal Chief Executive Officer, Aegis Ltd, told Business Line.
For example, he said, with 10-hour power outages in Gurgaon, the company has to run generators, which triples costs.
“A lot of incentives that the Government gave, like Software Technology Parks of India, are also no longer there, whereas other countries like Malaysia and South Africa have launched attractive schemes for this industry.
“Therefore, India is in danger of losing its tag of being a very competitive destination,” he said. Subramanya C., Executive Vice President and Global Chief Technology Officer, Hinduja Global Solutions, said the overall cost will keep growing because of the requirements of skilled people like chartered accountants and MBAs hired from major B-schools.
“To handle that requirement of expertise, companies need to pay a little more and therefore labour arbitrage will slowly go away,” he said.
However, Nasscom President Som Mittal believes that the demand for higher skills will be accompanied by a readiness to pay for it.
“As the business models are also changing, there are more outcome based-services, which impel us to work more and get paid more. Big changes are happening and the results are shown in the quarterly results of the companies,” he said.
Location shift
Some companies also believe that the industry needs to de-cluster from existing ‘metros only’ locations to smaller cities, with a population of one to three million.
These cities provide a cost advantage of 20 per cent over the existing metros and 30-40 per cent cost and price advantage over other competing countries, which will help India maintain its low- cost destination tag.
“India as a BPM destination will have unmatched cost and quality competitive advantage in the long run, which will be difficult for any other country to match,” Sanjay Mehta, Managing Director, Teleperformance India said.
Investments in tools and technology will add to the returns and not be an added cost for the same service, he added.
“The currency trend we see today is visibly having a positive impact on many export-oriented industries like the BPM sector in India.
“While the revenue is in dollar, the operational costs are in the rupee,” said Hanumant Talwar, Managing Director and Country Manager, Convergys India and UK.
“This is an opportunity we can leverage to make the required investments, and while currency is something we will watch closely, it helps to focus on things we can control as an organisation,” he added.