BPOs: The road best not taken

If there is one activity that is reshaping the fortunes of a city like Pune, it is Information Technology. All over what is called the “fringes” of the old town with its cantonment and the “native” city, the screech of drills has shattered the tranquillity for which the city was once famous; iron rebars shooting up into a sooty sky obliterate the green cover that almost justified old timers calling Pune a hill station.

Pune has become a vast construction site, the frenetic pace of disruptive construction blotting out its history and re-inventing its geography. Rivers are asphyxiated, old wadas give way to malls, the city yearns to be known as the state’s ‘Bangalore’, a global IT hub.

In every direction are visible the icons of the new economy: glass-fronted facades of angular buildings, cement roads and plastic trees planted at regular distances on sidewalks to give off an aura of de-culturised globalisation as the city’s destiny.

But the economic slowdown has had its impact on the ebullience of construction activity. New townships planned to cater to the “IT sector” exude a sense of listlessness, of fading hopes as demand for new office space wilts.

Not many can clarify what they mean by IT if they do not mean BPO. It is not the arrival of IT global research centres Verizon, Symantec or brick-and-mortar manufacturing that excites local business instincts as much as outsourcing. For this is an employment intensive activity; it carries upscale connotations unlike blue-collar manufacturing. There are “economies of scale”, economic “externalities” that spell profit for ‘lifestyle’ builders peddling an urban dream for first generation home-owners with paychecks fatter than the workers of a previous generation huddled in shantytowns along the old Bombay-Poona highway.

The city’s hillsides, once verdant and roads once lined with ancient trees now conjure a meta-reality in giant hoardings promising personalised fantasies at “Euthania” or “Balmoral” or “Capriccio.”

But the wheel is turning. Other nations compete for the same enchantments. BPO centres have been sprouting in other developing countries for years.

For western firms seeking back-end support at the lowest cost, India is becoming high wage country -- particularly Bangalore, Pune and Delhi.

The choice now is between the Philippines and Patna, and the lowest wage rate counts.

Outsourcing began in the early part of the new millennium as a novelty and has now become a necessity. Its benefits hinge on locating the lowest cost outsourcing hubs. A study by industry body Assocham and consultancy KPMG on India’s information and communication technology ICT sector felt India could lose 70 per cent of all incremental voice and call business to the Philippines, among other competitors.

English language skills are fairly developed and wages are lower, so far. It’s not surprising that Indian firms too have been making a beeline for lower cost destinations to outsource operations.

As far back as 2007, Indian majors such as Infosys, Wipro and TCS were scouting around in Poland, Romania in east Europe and Mexico and the Philippines to not just exploit the advantages of low cost but also to get closer to their clients.

The study estimates something like $30 billion in revenues could be lost to India in the coming decade unless something is done to retain the outsourcing business.

India enjoys the advantages of backwardness, low employment and a demographic dividend most investors in the BPO space find tempting. Wages are climbing but the spike is the highest in and around Tier-1 cities.

So the study recommends the development of BPO business to small towns and urban spaces that mirror Tier-1 cities at an earlier stage of their growth with high educational levels but low employment. The biggest advantages, of course, are the low levels of wages and cost of living in non-Tier-1 cities.

The logic of this kind of industrialisation is its basic transitoriness. Nothing stays; if wages rise firms look for other areas of low wage to pitch their tents. Perhaps urbanisation is an unintended benefit but if Pune is any example to go by then it is possible that the urbanisation will be hollow within; new glass fronted buildings hiding empty opportunities.

The Assocham-KPMG study’s recommendations of creating opportunities in non-Tier cities appear expedients to a rather dubious employment generating urbanisation.

Outsourcing of voice and call centre operations may sound similar to the subcontracting in manufacturing.

Multinational companies in the pre-digitalised world of manufacturing in the 1950s and 1960s sub-contracted operations to developing countries with an eye on low- cost labour and skills. They still do.

But the process of shifting parts of the manufacturing processes over time benefit host countries because of the spin offs in ancillary development. Technologies could be repeated, copied, operations require supply chains, feeder units. A labour force acquires skills that given enabling conditions could create entrepreneurship.

The bulk of outsourced operations -- voice and call centres, medical and legal transcriptions other back-end transactions do not carry any such externalities. There is no skill development in transcribing or answering calls in fake accents.

The attrition rate as the Assocham study notes is high among employees because rootlessness is the abiding condition of the work. No job in modern times is as alienating as one at a call centre and the only redeeming quality is the paycheck that, after a while does not compensate enough for the banality of the work.

But the rate of attrition is not high among the workers alone. It is also high among outsourcers that come looking for low cost workers and leave once costs rise.

In this sense, they are not very different from portfolio capital, “fair-weather” friends looking in this case, not for high returns in a host country but low wage levels.