Talent crunch is another daunting issue Indian BPO industry is facing since more than three years. The situation is especially grave for the IT and ITES sector. NASSCOM predicts that given the current growth, the demand-supply gap will increase to 2,06,000 by 2009. The lack of skilled labor has already resulted in a rapid increase in salary for Indian professionals and the country is in danger of loosing its low-cost advantage. The cost advantage for offshoring to India used to be at least 1:6. Today, it is at best 1:3. The London-based HR firm ECA International recently predicted a 14 percent jump in average wages in the Indian multinationals this year. But, says Mittal, "India still has a fairly large cost advantage despite wage inflation."
Also, the root cause for the shortage of skilled manpower is the poor quality of higher education in the country. Of the 2.5 million university graduates that India produces every year, human resource managers at multinationals consider only 10 to 25 percent as employable.
Attrition
Of late, retaining middle and senior management teams is proving to be a growing challenge. There is significant movement between jobs at this level. This is a key risk as it has the potential to derail growth and stability of the BPOs. Interestingly, nowadays some large BPO companies have tied-up with colleges to train the talent while they are doing their college degree. This has proved to be an effective model for cost reduction as well as manpower retention.
Domestically, the fresh trend is that the surge in real estate prices, attrition, and talent crunch in the Indian metros are forcing BPO industry to move to tier 2/3 cities in the country, according to a study by the consultancy firm Everest. Movement to lower-cost cities within India is likely to result in additional 15-30 percent reduction in operating costs despite lower employability and higher management costs, says the study.
The Chinese dragon
The BPO sector is looking at improving productivity, as now companies also need to fight competition from China which is trying to replicate India's model, says a NASSCOM survey. Also, countries like China, Morocco, and Hungary fast emerge as the preferred choices of IT service providers, says a Pierre Audoin Consultants (PAC) study. The Chinese Yuan has appreciated less than the Rupee and the Chinese government has been offering various incentives to its BPO companies. In the coming three to five years this may happen owing to a rising gap in educated workforce coupled with strong government emphasis on IT-BPO sector between the two countries, believe analysts. The software and services revenues in China are estimated to grow at 22 percent to reach $ 28 billion by 2010.
According to NASSCOM education initiatives member Sandhya Chintala, Within 10 years China would lead in the BPO industry and India will be at third position, followed by the U.S. "It's because of lack of trained manpower. About 60 percent of India's population is coming under the age group of 16 to 35. It is crucial to train this age group," she says.
The road ahead
While the BPO industry battles such issues, outsourcing growth expectations stand tall. As a result, many companies are gearing up to face the future with aggressive plans coupled with innovative strategies. They have been seeking ways to convert each customer into a value-reinforcing and revenue-generating resource. Service providers have added offerings such as finance and accounting, legal process outsourcing, risk management services, analytics, process re-engineering, data analytics, and customer value analysis, transforming from single-service cost centers to dynamic sources of customer data and incremental revenue for clients. This has in turn helped client organizations to enhance their customer relationship management programs with their external service partners.
However, smaller BPOs with low-end commoditized services are the worst affected by margin pressures, and the worst is far from over. These players will find it difficult to raise prices, and will be unable to pay enough to retain the best talent in coming times, predicts a report by ValueNotes Database. So in order to survive, the smaller players will have to provide very niche services, which add value to a company's business, on the lines of a KPO, says Anish Zavery of KPMG research firm.
Emerging BPO models
The newly emerging model is integration of IT and BPO. The customer organizations are now moving from piecemeal contracts to transferring ownership of entire processes to their vendor 'partners'. This presents a large opportunity for IT vendors like Satyam who have already integrated their BPO and IT arms and also started knowledge services and analytics practices. And a key ingredient of the 'integrated' offering will be the creation of platforms, especially for back-office and transaction processing services. Platform BPO will allow vendors to de-linearize growth through large-scale productivity payoffs and pay-per-use revenue models.
Hence, says ValueNotes report, in 2008 the KPO will rise to the next level of maturity and move from the staff augmentation model to a value-added role, in which the service provider partners with, and even consults the service user, and the services provided have the potential to directly impact the buyer's business objectives.
In essence, currently, India certainly leads with more than 70 percent of the global BPO market. And if all goes well, the future looks certainly bright. But with regard to challenges being faced by the industry, it needs government-industry partnership in terms of producing and nurturing industry specific talents and in making operations better to combat the competition. But, how to mitigate the imminent challenges posed by the global happenings? Will innovation or emerging BPO models save India in retaining its pride? -The '$ 50 billion question' is haunting the Indian BPO landscape.