Wake up call for Indian ITES/BPO industry?

Last 4-5 years have been good for India’s citizens economically. Most of the observers agree that the economic growth was fueled by ITES/BPO industry which took off in a major way and was the main contributor to the increase in inflow of foreign currency (nearly one third of the total inflow came from ITES/BPO sector). The ITES/BPO sector was supposed to do well in the coming years.

call center However, going by what is actually happening on the ground, it seems that the fast growth has slowed down in the ITES/BPO sector for the past 6-12 months though you might find that the people from the industry might not agree with that.  It seems that they want to still believe that things are good. However, if you do look around you, if you live in India, you would surely know about more than one ITES/BPO business which has closed shop in the last 12 months. If the industry does not pull up its socks the ITES/BPO sector will be finished in the years to come.

Why is this happening? A few years back India was a leading country to outsource to for ITES/BPO services. So what has changed which forces outsourcing companies to think before choosing India as a supplier of these services? The reasons are many.

Cost Advantage diminishing

When business started outsourcing to India the cost advantage was 1:6. Over the years the wages have increased and the cost advantage has now shrunk to 1:3. With attrition rates being high and shortage of manpower the cost advantage would diminish further in the coming years and once the cost advantage is only 1:2 you would see  lot of outsourcing being stopped. India’s education system has faltered and has not kept pace with the demand which has lead to the situation of higher salaries and the growth in other sectors has not helped.

Weakening US dollar

Most of the outsourcing was done by businesses of North America. With the weakening of the US dollar the profit of the companies has been hit because they are being paid less for the same work. The exchange rate of the dollar was as high as Rs.48.30 to a US $1 which has now come down to Rs.44.73 to a US$1 as in January 2007 which has eaten into the profits of the industry which has been facing increase in business expenditure.

Trained manpower for middle management

The biggest challenge as it has been, as in the other industries in India, to find middle management to run the operations smoothly. Usually employees who started out as rookies have been promoted over a period of time to be middle managers but they have been found wanting when it comes to actual management.

ITES/BPO as a career option not marketed effectively

Most of the employees who join the ITES/BPO industry consider this a chill job or something they do while they are studying or preparing themselves for a ‘career’. This has happened because initially the industry made a mistake to promote BPO/ITES environment as a ‘cool and happening industry’ to work in and the packages offered enhanced the glamour. The industry did realize the mistake but as they say the first impression is the last impression and the ITES/BPO industry could never shed that impression and now they are paying for it.

It is time for the ITES/BPO industry to wake up and get out of their ‘feel good’ slumber and ensure that they device ways to stay competitive in this industry vis-a-vis other countries otherwise the dream run would be over soon. I agree with the post on Venture Woods which rightly points out that it might be the end of the outsourcing era for India.

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