Rajendra Sharma from Sriganganagar
THE people of Rajasthan are in no mood to give a clear verdict in favour of either the BJP or the Congress. Hinting at new possibilities hidden in this situation, CPI(M) Polit Bureau member and leader of CPI(M) group in Rajya Sabha, Sitaram Yechury pointed out that this can create an opening for pushing pro-people decisions in the next assembly. He was addressing a big election meeting at Sadulsahar Anaj Mandi on 24th November. CPI(M) has fielded its old warhorse, the much respected leader, Hetram Beniwal from this constituency. He has been MLA once and also lost another election by a margin of only 500 votes.
Campaigning for strengthening the hands of CPI(M) in assembly, pointing towards its glorious record of popular struggles and fighting for alternative policies, Yechury expressed confidence of maximum utilisation of these possibilities. In this connection, Yechury talked of how post 2004 general election Left’s intervention at national level ensured that the UPA government, despite its reluctance, passed National Rural Employment Guarantee Act (NREGA), Right to Information Act, Forest Rights Act and even the Right to Education law. Besides local leaders and Hetram Beniwal, CPI(M) central secretariat member and incharge of Rajasthan, Hannan Mollah also addressed the huge crowd. Poor women, largely MNREGA labour, were present in huge numbers. The meeting ended with a procession led by Yechury and Beniwal, briefly passing through the Mandi area.
In Sriganganagar district, a traditional base of Red flag, CPI(M) has put up its candidates in four assembly segments out of a total of six. It has repeated its outgoing MLA, Pawan Duggal from Anupgarh. CPI(M) general secretary Prakash Karat along with Mollah campaigned for Kewal Singh contesting from Karnapur on 22nd November. Karat also addressed election meetings at Peelibangan in Hanumangarh and Neemka thana in Sikar district. Raisinghnagar candidate Sheopat Ram Meghwal is also putting up a good fight.
In the largely rural constituency of Sadulsahar, while both the Congress and the BJP face serious internal dissensions, as the traditional dominant families are deprived of ticket by both the parties, CPI(M)’s candidate has a distinct image advantage as a fighter for poor people’s causes, including historical canal water agitation.
Hanumangarh district of western Rajasthan, once considered bastion of Left under the leadership of legendary communist and Kisan leader Comrade Sheopat Singh, appears to be seeing a sort of revival of fortunes. For elections on 01st December, the CPI(M) is contesting from all the five assembly seats in this district. This includes mainly urban Hanumangarh seat, held more than once by Comrade Sheopat Singh himself. After a break of ten years, the Party has put up young advocate and DYFI state president, Raghuveer Verma from this constituency. CPI(M) Polit Bureau member Sitaram Yechury campaigned for Verma, addressing an impressive meeting at Dhan Mandi in Hanumangarh town on 25th November.
Addressing a large and responsive crowd, includin a big number of poor women, Yechury termed the BJP’s divisive agenda as politics of Dussashan (ill-governance) and Congress’s ruling class politics, as politics of Sinhasan ( throne). He appealed for strengthening politics of Jansashan (people’s rule) represented by CPI(M). Predicting a hung assembly in the state, Yechury called for sending larger number of CPI(M) members into the new assembly so that opening is created for pushing ahead decisions and policies favouring the poor and working masses. Besides candidate Raghuveer Verma and other local leaders, CPI(M) central secretariat member Hannan Mollah and CPI(M) Haryana state secretary and central committee member Inderjeet Singh also addressed the meeting.
Establishing itself as the main political force fighting for people’s interests, one of the many sustained struggles the CPI(M) has launched in this district is that of MNREGA workers. In a district where leaders of both leading bourgeoisie parties actually want to see this employment guarantee scheme stalled to depress rural wages, the Party has fought for keeping it going, expanding work under the scheme, increasing the number of work days to 200 in a year and daily wage rate to Rs 300. The Party has led struggle even for making the NREGA scheme workers, ‘Mates’ regular government employees. These ‘mates’ measure the work done and calculate wages of NREGA workers. No surprise that poor rural women workers, largely from socially weaker sections in large numbers are specially active for CPI(M) candidates. Similar is the story of scheme workers. Beside various issues concerning peasantry, CPI(M) here has also taken up issues including declaring the district as a rice belt, utilising Ghaghar water, making toll roads more accessible to local rural people and even improving law and order situation.
Balram Punia, contesting as CPI(M) candidate from Bhadara, is said to have a distinct edge over his Congress and BJP rivals. A recognised Kisan leader of the area, he has led struggle on questions of water and electricity. Braving government repression on these agitations, he also led the fight against liquor mafia and its anti-social activities. Punia also faced a nearly fatal physical attack be the same mafia. Besides large number of kisan workers, students and youth in huge numbers are campaigning for the CPI(M) candidate here. In the recently held students union elections, SFI has won in four out of five collages here. In the previous assembly election Punia had polled more than 15,000 votes. CPI(M) district secretary Rameshwar Verma told PD that Party candidates Maniram from Pilibanga constituency and Jagjeet Singh Jaggi from Sangaria constituency are also putting up good fight.
A vote to CPI(M) is not only a vote to our Party or only a vote for our candidate. This is a vote for yourself as it will increase your voice in the coming assembly. CPI(M) Polit Bureau member and leader of the Party group in Rajya Sabha, Sitaram Yechury said while campaigning for CPI(M) candidate B S Meel in Laxmangarh constituency on 25th November. He underlined that Rajasthan is likely to see a hung assembly and the strength of the Left can play a crucial role in pushing forward pro-people steps and policies.
Calling upon people not to miss this opportunity, Yechury made a special appeal of increasing Left’s representation from Sikar district, which last time gave CPI(M) two out of the total of eight assembly seats. This predominantly rural constituency is one likely candidate for increasing CPI(M) representation in the assembly. The huge rally held at Ramlila maidan was also addressed by leader of CPI(M) group in assembly Amara Ram and Party central secretariat member Hannan Mollah beside other state and local leaders. Tripura CM Manik Sarkar also campaigned for CPI(M) candidates in the district and addressed two big rallies in Dhondh and Khandela assembly constituencies.
Earlier this year, Genpact, the largest business process outsourcing (BPO) player in India, gave Harpreet Duggal a new role: responsibility for developing and executing the company’s domestic BPO strategy. Duggal is already well into discussions with potential customers, and is finalizing operating locations. He’s moving fast because Genpact isn’t the only Indian company interested in this space. For many reasons, the domestic BPO market is one that no one can afford to ignore anymore.
Duggal primarily is targeting two sets of potential customers: existing global customers who are looking to increase their presence in India and require the same systems and processes they have elsewhere; and Indian companies with global aspirations, both by way of moving beyond Indian boundaries and by providing a global experience in the Indian market. These require world-class processes and systems. Says an upbeat Duggal: “We believe that India is a very exciting market to be in.”
Having been on the periphery, the domestic BPO business is steadily moving onto everyone’s radar. Companies including IBM Daksh, Firstsource Solutions, MphasiS BPO and Intelenet Global Services are looking to significantly increase their presence. Others, such as Wipro BPO and Infosys BPO, are waiting for the right time to enter the space as part of a total outsourcing solution along with their IT arms. And, firms such as 24/7 Customer have no immediate plans to enter but are watching the space keenly.
What has brought about this growing interest in India’s BPO market? Industry players and analysts cite multiple factors. These include reduced costs of connectivity, the scorching pace of the Indian economy, the phenomenal growth of companies in sectors including telecommunications and financial services, rising customer expectations, Indian firms’ global aspirations, and global firms entering the Indian market. The changing rupee-dollar equation and the slowdown in the U.S. economy, which is forcing players to look at other markets, have added to the momentum.
Wharton management professor Saikat Chaudhuri says the factors driving that trend are the “tremendous growth” of India’s domestic markets, the slowdown in Western markets, and the dollar’s weakness against the rupee. He notes that a whole new class of medium-sized companies outside of the well-established and large industrial houses like those of Tata, Birla, Ambani or Goenka is looking at farming out noncore activities to increase efficiencies and focus on core competencies. “These companies are becoming customers of Oracle, Cisco, SAP and so forth,” says Chaudhuri.
According to Ravi Bapna, assistant professor at the Indian School of Business, “It’s now become profitable to address this market and the industry is set to take off.”
A glance at the Indian BPO industry’s growth helps put the dynamics of the domestic market in perspective. At a compound annual growth rate of around 37% over the last few years, BPO exports have been the fastest-growing segment of the Indian IT-BPO sector. They have grown from $3.1 billion in fiscal 2004 to $11 billion in 2008 and currently account for 37% of the global business process offshoring pie. They sustain an employee pool of more than 700,000.
Players have tried over the years to add quality and efficiency to their original labor arbitrage sales pitch. They have been moving from low-end, non-core activities to more complex processes. Now, in a move further up the value chain, they are looking at becoming transformational partners to their clients, making an impact on business metrics.
A recent study by the National Association of Software and Services Companies of India (Nasscom) and the Everest Group estimates that in a “business as usual” mode, India’s BPO exports will grow to $28 billion to $30 billion over the next four to five years. With proactive measures, the report says, they have the potential to reach $50 billion by 2012, with a maximum addressable opportunity of $220 billion to $280 billion.
Traditionally, Indian BPO vendors have relied largely on English-speaking geographies as their markets. North America and the United Kingdom together account for about 87% of their export revenues. North America, primarily the United States, accounts for roughly two-thirds of the market alone. While this dependence on the U.S. market is expected to continue, players have been expanding their footprints in other markets, notably continental Europe and the Asia-Pacific region. With the slowdown in the U.S. economy, rupee-dollar fluctuations, and growth in other markets, this move to tap other geographies not only acts as a natural hedge against currency fluctuations, it’s simply a good business strategy.
India’s Growth Beckons
That’s where the Indian market comes into play. India’s economy is growing too fast for any industry not to want to share in its growth. From less than $100 million in 2002, BPO demand in the domestic market grew to $1.1 billion in 2007. In the last year, it is estimated to have grown to between $1.6 billion and $1.8 billion. The Nasscom-Everest study estimates the potential addressable market at around $15 billion to $20 billion over the next five years. Realizing even half of this potential would be significant.
In many ways it would change the nature of the industry. As it stands, close to 80% of the industry comprises captive shared service centers. The rest of the industry is highly fragmented. Estimates suggest that 400 to 500 firms constitute the unorganized sector. As the industry gains in size and stature, a fair bit of consolidation is expected. Third-party service providers, many whose revenues are growing around 100% a year, are expected to increase their market share significantly.
Telecommunications and financial services have been key verticals spurring domestic demand, followed by consumer goods and airlines. Going forward, government, travel and hospitality, retail, and media and entertainment are expected to attract significant demand for BPO services in India.
Ravi Aron, senior fellow at Wharton’s Mack Center for Technological Innovation and an expert on outsourcing trends, points out how BPO firms in India will find the domestic market more challenging than those in developed countries. For starters, he says Indian companies in several services industries including those in the BFSI (banking and financial services industry) segments are wholly owned by the government. BFSI companies have tended to be the biggest opportunity for outsourcing services providers in Western markets, he adds.
“Although these companies present the right opportunity for BPO firms, state-owned banks and insurance companies like the State Bank of India and General Insurance Corp. of India are going to be very slow to start outsourcing on a large scale,” says Aron. “That is because of the extraordinary pressure they will face from their unions, who don’t want their jobs to go to the private sector.”
The second challenge BPO firms will face in India stems from the fact that any company’s decision to outsource its needs is “heavily embedded in its technological architecture,” says Aron. “Indian services companies in either the public or the private sector are heavily underinvested in technology on a per-capita and per-sale basis compared to those in the U.S. and Europe. Indian services companies are far more labor intensive, and don’t have the technology platforms that will facilitate outsourcing, excluding [financial services companies like] an ICICI or HDFC.”
Aron talks of the “3 Ps” of information architecture — platforms, processes and people — “where Indian companies are not streamlined.” He says internal processes at most Indian services companies are “idiosyncratic” and not standardized as in large retail companies like Wal-Mart or U.S. health care companies.
Gaurav Gupta, country head of the Everest Group, points out that with the phenomenal growth in these industries, the name of the game for most companies is to gain market share and grow the top line. The competitive landscape is straining companies’ operational models. So companies in these industries are turning to vendors who can help them overcome some of the challenges associated with fast growth, like managing huge volumes and providing a large network that can reach out to different corners of the country rapidly. Says Gupta: “The present systems and processes are nowhere near adequate, either by way of scale or expertise, to sustain the kind of growth that companies are seeing in India. These require tremendous ramping up. Otherwise they will become severe bottlenecks.” Adds Susir Kumar, chief executive officer of Intelenet Global: “At this stage of growth, companies would rather use their capital in building their brands, acquiring customers, and focusing on their core competencies and outsource whatever is possible.”
Aron agrees that big opportunities lurk behind those shortcomings at Indian services companies. BPO firms could help standardize and automate processes at Indian companies and achieve “extraordinary productivity gains of up to 35% over 18 to 24 months,” he adds. “That is why doing BPO in India for Indian companies makes a lot of sense. Instead of wage arbitrage, start thinking about productivity arbitrage.”
Even as companies busily increase their customer base they realize that, with the Indian economy becoming more globally integrated, customers are ever more demanding. The “new” Indian customer is not satisfied with anything less than world-class levels of product and service quality. Take the Indian telecom industry. It is among the most complex in the world, with new products being introduced practically every day. It is becoming imperative for companies to get it right the first time. Customer service is seen as a key differentiator in the crowded marketplace. Customer service, in fact, accounts for two-thirds of revenue in the domestic BPO market, followed by finance and accounting and human resource outsourcing. As Nasscom vice president Rajdeep Sahrawat says: “There is very little to differentiate companies from the product point of view and therefore offering very high quality, personalized, 24/7 customer service is critical. This requires scale, flexibility and expertise.”
Bharti Airtel, India’s largest mobile services provider, is an often-cited example. Bharti was one of the first and biggest Indian companies to outsource on a large scale. In August 2005, the company signed a mega deal with four global BPO companies — IBM Daksh, MphasiS, TeleTech and Hinduja TMT — to outsource its call centers. Bharti had already outsourced its IT and cellular networking requirements to IBM and Ericsson, respectively. These strategic moves allowed Bharti to focus on its core areas of product innovation, marketing and brand building. Bharti has a mobile subscriber base of around 60 million and is adding around 2 million subscribers a month. It is a beacon for others targeting high growth. Says Ramesh Gudalur, president of MphasiS BPO: “Companies like Bharti who look at outsourcing as an integral part of their business strategy are completely changing the way Indian companies have traditionally run their businesses. This is putting pressure on others, both in their own industries and in other sectors, to follow suit.”
Opportunities await BPO firms also in providing specialized services to newly emerging industries like retail, fashion apparel or automobile components, such as customer relationship management (CRM), market research, accounting, and inventory and supply chain management, says Aron. “Many of these specialized services companies have the money, but not the managerial capacity or bandwidth to automate their processes and extract efficiencies,” he adds. He sees a new trend emerging in the next two to three years of “platform-based BPO” that provide niche services in areas like credit card fulfillment, mortgage loan processing and loan refinancing, and property & casualty insurance.
Increased capability in the supplier community is also encouraging Indian companies to move toward outsourcing. Having grown via the export market, many large suppliers have developed end-to-end capabilities that are large enough to attract the domestic players looking at huge volume growth. More important, the suppliers now have the capability to deliver value by way of technology platforms or process expertise that goes well beyond just cost.
This doesn’t mean that the cost advantage that Indian companies enjoy by outsourcing their business processes is insignificant. Cost, as Sandeep Soni, chief executive officer of Spanco BPO, points out, remains an important driver by sheer virtue of the economies of scale that a vendor brings in. However, it is unlike the export market, where labor arbitrage was the key factor in the industry’s early days and continues even today to play a dominant role.
Chaudhuri argues that BPO services companies could still play the wage arbitrage card to a significant extent in India’s domestic markets, but differently. “That is because there are many inefficiently run companies in India, and the BPO companies have not just the expertise but also the scale to perform functions across the board at a much lower price,” he says. “While the wage arbitrage in India’s domestic markets may not be as attractive as it is in the west, certainly the volume of activity can make up for it.”
Sabyasachi Satyaprasad, senior director at advisory firm NeoIT, says the absence of a strong labor arbitrage in the domestic market will in fact compel vendors to offer a higher-value proposition, such as solving business problems for their domestic clients. This, he says, could well result in the domestic BPO industry leapfrogging some of the growth stages that vendors had to go through in the global market. Industry players agree. Says Pavan Vaish, chief executive officer of IBM Daksh: “When one is operating in a market where there is no arbitrage benefit, you have to innovate and add value to the customer. When we started out in 2005 we had thought that our international business would give us a lot of insights into our India business. But what we are finding is that it is our India business where a number of amazing innovations are happening.”
BPO companies that have concentrated on serving Western markets may not feel the need to reorient themselves as they look to serve domestic Indian companies, says Chaudhuri. While these BPO companies developed their “global delivery model” for Fortune 500 companies, he notes, many of them were “born and bred” in India, including Wipro Spectramind and Genpact’s predecessor company. “The outsourcing model has been designed keeping Indian constraints in mind from the very beginning, which allows for very healthy margins when they deal with foreign clients.”
The only significant difference BPO companies will encounter In India’s domestic market is the need to offer simplified services, according to Chaudhuri. “The BPO companies targeting the Indian market are not going to sell $300 million or $1 billion contracts for five years,” he says. “They will have a lot more projects that are in the $1 million, $5 million and $10 million range. They are well-positioned for that because they started small themselves.” He says these BPO companies could also replicate the dedicated units they set up with some clients.
This presents its own challenges. While their global education is valuable, vendors must create a proposition that is relevant to their domestic clients’ immediate needs. According to Sanjeev Sinha, senior vice president of operations at Firstsource Solutions: “In many cases the India market has requirements that are rather different from the global markets, so vendors need to adapt and customize the solutions to the local situation. A cut and paste of the global solution will not work.”
Vendors also need to think ahead of the curve regarding their very business models. With India, an extremely price-sensitive market, pricing models need to be innovative. Vendors must build capabilities that allow them to adapt to the changing expectations of a fast-growing and competitive marketplace. As Anirudha Prabhakaran, chief operating officer of 3i Infotech, points out: “This is a market which not only negotiates very hard on the efficiency front but also constantly raises new demands.”
One potential obstacle Aron sees is a “huge divide” that exists between managerial personnel and the clerical staff at Indian companies in the ability to efficiently use technology in processes. While Indian managers are able to use technology to access data, analyze it and create reports, for instance, clerical workers tend not to use computing capabilities to their fullest extent, he notes. “You don’t see that sharp divide in the U.S.,” says Aron.
Variation in Margins
There are other challenges, too. India, as it is well-known, is not a homogenous market. It has myriad regional languages, varied cultures and remote corners. For players who are looking at scale and who have national ambitions in the domestic BPO market, this means managing a range of complexities. Also, for the economics to be viable, players will have to move from larger cities and set up operations in Tier 2 and Tier 3 locations. It is true that the domestic market does not require that BPO agents be trained by way of voice, accent and culture; therefore it is less expensive and easier for service providers to move into the smaller cities. But the challenges posed by infrastructure and the availability of senior management must still be dealt with.
The biggest challenge, however, could be around profitability. Although the costs by way of infrastructure, wages and training are lower for the domestic market, so is the pricing. Pricing in the India BPO market is estimated to be anywhere between 30% and 60% less than in its global counterpart, though more experienced players insist that their domestic BPO margins are comparable to their global business or only marginally lower. With the outsourcing market in India still not mature, the readiness to pay for world-class services remains a challenge. But as Duggal of Genpact points out: “Even in the global markets the variation in margins is phenomenal.” It all depends on how effectively vendors are able to deliver by way of cost structure, people management and value creation.
Chaudhuri says BPO companies focused on India’s domestic market could continue to enjoy cost advantages because many of them are extending operations outside of the big cities to cheaper, second-tier cities. They could also use their Indian base to supply markets in other developing countries, he adds. “It’s like the Tata Nano [the Tata group’s newly launched small car], where the first foreign markets are in Africa, Southeast Asia and European countries that have road density problems, and some parts of Latin America,” he says.
Chaudhuri sees other, longer term gains for BPO companies in all this. As service providers to India’s new class of business houses that are expanding globally, they “could follow their clients to foreign markets,” says Chaudhuri. “The Japanese banks followed the Japanese conglomerates, and U.S. telecommunications companies like Verizon did the same thing, following their financial services clients overseas.”