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India's back-office
revolution
By Dinkar Ayilavarapu
KOLKATA - Ashish is a regular guy. He is doing
his graduation in commerce from the Delhi University and
after college he goes for his computer course. At night,
though, Ashish becomes a whole new person. Sporting a
Midwestern accent, he converses with numerous Americans
on the telephone.
He is not alone; Ashish is one of
more than 100,000 Indians who are employed in a Rp 80
billion (US$1.6 billion) business sector that is fast
becoming an important engine for the Indian economy as
well as a ladder for social advancement. Ashish works
for a call center, spending his days reminding Americans
of their pending bills and payments while earning a neat
packet to pay his way through college. It is people like
Ashish who are turning India into the back office of the
world.
It is somewhat surprising that India
would be the country in the forefront of back-office
outsourcing. In the 1960s, when the West began exporting
its manufacturing in large quantities, India was somehow
left out. Then, it was first the Japanese who picked up
the business, then the Koreans and Taiwanese, and
finally the Chinese. And that is how it has stayed
since. But, in the mid-90s, India struck back. Having
satiated its manufacturing hunger, the West needed
somebody to deliver its services - and it was here that
India stepped in. Having missed the Industrial
Revolution, India jumped straight into the Services
Revolution.
It's an old habit of Indians to
blame the Raj for societal problems, and Thomas B
Macaulay is reserved for special treatment since it was
his educational system that produced the babus
(clerks) who could speak English and mediate between
the Raj and the natives. And yet, more than 50 years
after independence, it is this same education system
that produces thousands of fluent English-speaking
Indians who, having powered the software revolution of
the 1990s, threaten to do the same with IT-enabled
services now. Since the work is shipped back and forth
across the telecommunication system, these workers are
described as teleworkers.
Why
India?
Fifteenth century Babur, the first of the great
Mughal emperors, fell in love with India on his very first
visit. He liked India for the rains, for
the forests and more importantly for the numerous roses
which bloomed in the country. The modern day business
emperors like India for a wholly different set of reasons. For
them India is a place to which they can ship their back office
work at night and get the finished product back the next
morning.
India provides the services-hungry West
with numerous smart English-speaking, college-educated
graduates. The often-criticized Indian education system
is now powering the services export bandwagon.
Teleworkers in India are more educated and generally
show a greater commitment to the job than the typical
college dropout or high-school graduate who works in the
industry in the West.
The other great advantage
India enjoys is the quality of its technical education.
India possesses numerous institutes of specialized
technical learning and produces thousands of engineers,
designers, technicians and accountants every year.
Shipping out sophisticated back-office services makes
more sense for the Western world since the wage gap
between an Indian and American accountant would be more
substantial than that of, say, a college dropout in both
countries. The more sophisticated the operation, the
greater the saving.
And finally, even the gods
favored India with her location. It has a 10-hour time
difference with the US, so when the offices in the US
close for the day, all the work can be shipped
immediately to India, where it is now a day job for the
numerous teleworkers. Probably the biggest advantage
India has is its extremely low cost of services. Major
multinationals like American Express and GE Capital save
between 40 and 50 percent by operating out of India, even
after taking into account the country's high telecom
tariffs.
The story so far
GE Capital put
India on the international teleworking map. It is now
a US$2 billion enterprise in India. American Express has
also moved its back office operation to India and has
one of the largest in the country. British Airways and
Swissair run their frequent-flyer programs from India as
well. Amazon.com sources services from Daksh.com, and
even Citigroup has its own services provider in e-Serve
International. The Indian IT-enabled services industry
can be divided into two types of player - the captive
and the independent. The captives are the wholly-owned
Indian subsidiaries of multinationals. They have assured
lines of business, big names to associate with and are
tuned to deliver the needs of the parent company only.
The independents, on the other hand, comprise a large
number of small players who rely on providing services
to several different Western clients on a customer
basis.
In the new economy boom of the 1990s this
industry went through a bubble as well. Anybody with
knowledge of English, a few computers and access to
bandwidth set up a teleworking business. This created
huge excess capacity in the industry and has driven down
prices. Medical transcription, for example, used to
command prices of 12 cents per line, but now brings in
as little as three cents. India has about 200 medical
transcription firms, and Sanjay Jain, managing partner
of Accenture India, estimates that $75-$100 million of
the capacity created lies unutilized.
The
business done by the teleworking majors can be
classified into four broad segments. The lowest is the
data entry and conversion segment. These are low-value
services done across huge distances. This primarily
involves secretarial work. The time difference is
crucial here, as work is shipped at night from America
and shipped back before dawn breaks there. This segment
accounts for Rs 40 billion of business and employs
40,000 people, including 10,000 medical transcribers.
Next in the order is simple rule-based
processing jobs. Here the teleworkers are required to
make simple decisions on the basis of preset rules. This
would include credit-card operations where teleworkers
make a call on whether or not the limit needs to be
extended or relaxed. Accounting for Rs 2.1 billion and
employing 3,000 people, this is a rather small component
of India's teleworking sector.
The
customer-interaction call centers come next. They are
the mascots of Indian teleworking industry, employing
about 33,000 people raising Rs 16.5 billion in revenues.
Sitting in India, teleworkers give reminders to
Americans on their skipped credit card payments, bills
and premium and mortgage payments.
At the apex
come sophisticated and valuable "expert" services that
not only command premiums but also provide high entry
barriers to competitors. This may include an Indian
lawyer doing research for his American or British
counterparts or Indian engineers designing structures
for engineers abroad. These are worth Rs 21 billion and
employ 30,000 people in all.
India, warts and
all
The picture is beautiful, but a closer
inspection would bring to view numerous warts and moles
in it. India is country where things often just don't
work. Nobody can tell when the power will go out or when
the phone will crackle and die. The infrastructure of
both the power and the telecom industry is woefully
inadequate and unreliable to do business. In addition,
there is the usual infinite number of bureaucratic
delays, corruption and red tape which surrounds every
business venture in the country.
The Indian
financial sector hasn't evolved enough to create a
demand for sophisticated back-office operations for the
domestic market. The bulk of Indians still save their
money in safe-deposit boxes. Credit and debit cards are
a long way off. A very minute fraction of India is
insured, so there's no need for reminders for premium
payments. Having a strong domestic demand in any
industry is essential because it not only helps create
competence locally but also helps amortize expenses over
a larger base. In the absence of an Indian domestic
market for such services, the Indian majors have to get
all their revenues from exporting these services.
In addition, for India to attract teleworking
business, it should be able to provide quality of
service comparable to what the hubs in Ireland or the
American Midwest provide. This also includes issues of
confidentiality, which many operations like credit card
and medical histories demand.
To overcome some
these drawbacks, Indian teleworkers rely on redundancy.
For example, given the unreliability of the power grid,
the office of Spectramind, an IT-enabled service
provider in Delhi, has two generators to back up the
municipal supply and a third one to back up ther first
two. Given the unreliability of the phone system, there
is always a second phone line idling for everyone in
operation.
The Indian teleworking majors spend
large amounts of money and effort training their
employees about American sensitivities and culture. The
teleworking industry has also benefited from the brand
image built by the Indian software industry. In fact,
India's Planning Commission recently recommended the
creation of an "India Brand" marketing fund for
promoting the country as a preferred destination for
IT-enabled services, while also suggesting the
establishment of a venture capital fund for the segment.
All this may well help the Indian teleworkers graduate
to the billions which their software cousins make.
Where is the rest of the world in all
this?
Traditionally the Western world has sourced
these services from close to home. For a long time it
was the Irish, the British, the Israelis and the
Australians who dominated. But with the emergence of
Asia (largely China, Singapore, Hong Kong and the
Philippines) and Latin America (largely Mexico), more
and more services began to be shipped there.
Experts in this industry map various nations on
two axes - the location aspect (infrastructure, country
risk and time zone) and the human aspect (the quality of
skills, language and cost). The advanced nations have
the best language skills and also the best
infrastructure - but they don't come cheap. They also
don't have the 10-hour time difference which fits easily
into the American off-peak time.
Most of the
non-Indian Asians have huge language barriers to bridge
and also suffer from infrastructure problems. And some
among them, as in Singapore, stopped being cheap long
ago. They have the time difference on their side, but
suffer due to weak higher education systems and lack of
knowledge of English. Even in countries where English is
readily spoken, such as the Philippines, the economies
of scale can't match those of India. The day the Chinese
starts speaking English from an early age (which may not
be very far away), India would be facing its toughest
competitor to date.
India thus stands in a
league of its own. It has a phenomenally large number of
college or technical-school graduates with sound
knowledge of English and, although stymied by tardy
regulatory and administrative processes and slowed by
erratic infrastructure, it can offer enough savings on
manpower to attract the big names of the Western
corporate world.
But price, as any
self-respecting consultant would tell us, doesn't
constitute a sustainable competitive advantage. If India
is to stay ahead in this race, it has to do two things.
First, it needs to improve its infrastructure. Power
supply and telecom services need to be freed from
government control and tariffs need to be rationalized.
Second, the teleworking entrepreneurs have to ensure
that they rise in the value chain of the industry by
providing more-expert and more-valuable services. The
lower they are on the value chain, the easier it becomes
for anybody who can hook up a few computers and speak
English to eat into their market. In its absence, it may
be India today and someone else tomorrow.
Thus,
as the clock strikes 9 in the evening, and his office
car picks Ashish up from his flat to take him to work,
it is still an open question whether he is on his way to
the forefront of the teleworking revolution or to just
another temporary job that promised advancement but
failed to deliver.
(©2002 Asia Times Online Co,
Ltd. All rights reserved. Please contact content@atimes.com
for information on our sales and syndication
policies.)
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