An Evaluation of the State of the Indian BPO and Call Centres in 2009 and Some Implications for the Scottish Economy
Professor Phil Taylor
1. Introduction
The following report is based upon research undertaken during a visit to India in February 2009. The general purpose of the research was to update our understanding of the state of and prospects for the offshored Indian BPO (Business Process Outsourcing) market (including call/contact centres) in the context of the deepening global economic recession, but also in the wake of the Mumbai terrorist attack and the Satyam scandal. As a consequence of these factors, the Indian BPO industry might be seen to be on a cusp facing, for the first time in almost a decade, challenges that raise doubts over its sustainability. In the words of the Chairman of Nasscom (Ganesh Natarajan) ‘India is at an inflection point’.
The research was composed of two elements which will be more fully outlined below. Firstly, data was gathered at the Nasscom (National Association of Software and Services Companies) Leadership Forum in Mumbai (11-13 February 2009) that provided insight into the perceptions of the industry leaders and other informed participants. Secondly, fieldwork was conducted in Bangalore which included visits to BPO companies, extended interviews with senior management, team leaders and workers that provided complementary intelligence.
Since India remains overwhelmingly the most important destination geography for BPO, knowledge of recent developments in this sector is essential for understanding emerging global trends in the outsourcing and offshoring of business services. However, the principal objective throughout is to relate this understanding to consider the implications for Scotland and its economy.
The focus of this report, then, is to evaluate the position that Scotland occupies in the evolving global service delivery model in the light of the changed conditions within Indian BPO. The central question to be answered is how can Scotland best enhance its proposition as a location for business services and as a destination for inward investment. What gives this line of investigation added salience has been the growing realisation amongst policy makers, ministers, academic and others that Scotland has the potential to promote itself as a global BPO ‘hub’[1].
Contrary to the received wisdom that sees the globalisation of business services exclusively in terms of the threat posed to the developed economies, the emphasis should be on the fact that the relocation of BPO might provide certain opportunities for Scotland’s economy.
2. Background – From Offshoring to Global Service Delivery
2.1 Limited Impact of Offshoring on the Scottish Economy
Setting the context for the report it is necessary to reflect, however briefly, on the significance of the overseas migration of call centres and business services as far as Scotland’s economy is concerned. What follows summarises the conclusions drawn from reports for Scottish Development International (SDI) which contain detailed evidence from both India and Scotland and which evaluates the potential threats and opportunities for Scotland (Taylor and Bain, 2003; 2006; Taylor, 2008). These are supplemented by relevant data from in-depth audits of the contact centre in Scotland, the latest of which was concluded in 2008 (Taylor and Anderson, 2008).
In 2002 widespread concerns emerged over the future of the contact centre in Scotland in the face of the perceived threat from offshoring to India, to the extent that many predicted the imminent extinction of the domestic sector. This was a matter or profound concern since customer contact centres had become an increasingly source of economic activity across Scotland. By 2003, it was estimated that as many as 38 per cent of all new jobs created in Britain were in contact centres, with a higher proportion in Scotland and other ‘peripheral’ regions. By 2003, 1 in 43 of Scotland’s working population were employed in a contact centre.
Our rigorous investigation of offshoring countered these cataclysmic projections and demonstrated the continuing vitality of the domestic sector (Taylor and Bain, 2003). Evidence of the intentions and practices of employers of organisations based in Scotland (and the UK) revealed that the offshoring of voice services was far more contradictory and complex than consultants (e.g. Mitial, 2002) and commentators were suggesting. In short, the advantages, principally the undeniably low cost of labour, did not necessarily outweigh the many perceived disadvantages, which included linguistic and cultural differences, problems of control over remote locations, rising costs in India, customer resistance and massive problems with attrition.
The conclusion was that even though the volume of overseas migration of voice services would grow in the context both of companies’ drive to cut costs, notably in financial services, and of the rapid expansion of the Indian industry, growth would also continue in Scotland’s domestic call centre industry. This was a conclusion definitively confirmed by subsequent developments. Our 2008 audit established that contact centre employment now stands at 86,000 (Taylor and Anderson, 2008) having grown from 56,000 for 2003. By 2008, 1 in 30 worked in the call centre sector and almost 1 in 10 in Glasgow and in Inverclyde.
A further detailed study of the financial services sector in Scotland (Taylor and Bain, 2006) deepened our understanding of the scale and nature of offshoring, not only on voice services but also in relation to the non-customer back-office. This was important since one conclusion of the 2003 study was that the back-office in the longer term might be more susceptible to overseas migration than the call centre. Nevertheless this study clearly showed that Scotland’s financial services had been affected by offshoring to only a limited extent, notwithstanding the possibility of future threats and impacts.
To sum up, at the time of the acute financial crisis of September 2008, which precipitated the economic recession, offshoring had only impacted marginally on Scotland’s contact centre industry. The audit concluded that ‘the majority of organisations operating contact centres in Scotland do not engage in offshoring and a small number of organisations report that they have withdrawn from the practice’[2] (Taylor and Anderson, 2008: 77). The audit also confirmed an earlier finding that is important given the objective of developing Scotland’s distinctive proposition as a BPO hub. It is only the most standardised and transactional services that have been offshored and organisations report a limitation in the types of service and the degree of complexity subject to migration. Large numbers of organisations reported actual or perceived linguistic and cultural difficulties in India, related to the inflexibility of agents to go beyond script, which impacted negatively on customer satisfaction.
Thus, the large majority of organisations emphatically reported that retaining the bulk of customer servicing at home was an operational requirement. Even the most aggressive of offshorers state that it is far from the case that ‘everything will go’ and all remain committed to retaining more complex voice services and core competencies domestically despite intensified pressures to cut costs. Without going into the detail of the argument offshoring should be seen as only one element in the matrix of cost reduction strategies that might be pursued by organisations (see Taylor and Anderson, 2008: 80ff). These include domestic outsourcing, the introduction of lean and, in terms of voice specifically, moves towards automation and self-service.
Nevertheless, offshoring to low cost destinations, particularly India, will continue to provide a pole of attraction which will exercise an influence over corporate thinking as Scottish organisations (and UK organisations with operations in Scotland) consider cost cutting measures. We re-iterate our conclusion, though, that back office work is likely to be more vulnerable than voice work to further offshoring.
2.2 Global Service Delivery – Offshoring, Onshoring and Nearshoring
One of the most important conclusions to emerge from these studies was the need to alter the prism through which offshoring was being viewed. Until recently the relocation of business services had been conceived principally in terms of one-to-one migratory flows between organisations in the developed countries and remote operations in a particular developing country. Admittedly, this might mean offshoring companies using more than one supplier, but the debate was largely framed in respect of offshoring to specific individual geographies, notably to India. The increasing use of the term ‘global service delivery’ in the international BPO industry, particularly by the multinational corporations providing business services, was not mere rhetoric but reflected a rapidly evolving material change in the geography of sourcing and service supply chains.
What increasingly have emerged are multi-locational, multi-site strategies from both demand and supply sides, which seek to capitalise on differing combinations of available skills, and resources accessible in diverse locations and which may serve different geographical markets or customer segments. For example, a firm seeking lower-cost solutions may simultaneously source English-speaking voice services from India or the Philippines, Spanish language services from Mexico or elsewhere in Latin America, various IT, technical and multi-lingual requirements from Eastern Europe, data processing from China and so on. Consultants’ reports articulate what global service delivery entails. For example, Kearney (2007: 12-13) recommends that larger companies should develop ‘cluster’ footprints where the aim is to have one primary location supported by one or more secondary locations. The rationale is as follows.
By staggering functions in multiple locations, companies can make cost benefit trade-offs and adjust the functional mix over time as costs and availability of people vary…centres for low-end business transactions may be pure cost plays, while those for higher-end activities will depend on the quality and availability of the workforce. Similarly, certain functions will be sensitive to service disruptions so should not be placed in high risk areas. Language needs, time zones, cultures and regional coverage should also be factors in the decision…These locations should realise the best economies of scale…this model is flexible so tasks and functions can flow between centres over time as cost and talent situations change.
The main driver of global service delivery has been wrought on the supply side by multinational service providers such as IBM Global Services, Accenture, Convergys, Sykes, Teleperformance and Hewitt Associates. Most are MNCs whose homebases are in the U.S. Some are generalist providers of diverse services, from IT/software, to data management and customer relationship management such as IBM. Others provide specialist services. In the expanding Human Resource outsourcing market, Hewitt Associates have leveraged their domain knowledge to telling effect and now employ 24,000 ‘associates’ in 34 countries (http://www.hewittassociates.com). Others specialise in the similarly expanding horizontal area of finance and administration While Accenture is a multi-faceted consultant and business service provider its portfolio includes a specialism in F&A processes[3].
A cluster of MNCs focus specifically on customer contact services. Teleperformance (http://www.teleperformance.com) claims ‘the largest global footprint in the industry’ with 293 centres servicing over 75 markets from 13 near-shore and offshore locations. Another excellent example is Sykes. Its locational map indicates the reality of global delivery; eight U.S. centres, ten in Canada (850 agents), two in Argentina (2,600+ agents), one each in El Salvador (500+ agents) and Costa Rica (3,000+ agents), one in Brazil, two in China (1,000 seats), eight in the Philippines (9,000+ agents) and eighteen in EMEA (4000+ agents). Specialist voice companies are simultaneously onshore, nearshore and offshore providers, delivering services in multiple languages appropriate to the different customer bases served. What these different types of MNCs have in common is their transnational reach and ability to utilise common technology platforms to ‘leverage’ global sourcing. Allowing for promotional hyperbole, EDS (now acquired by Hewlett Packard) provides a good example of the technological infrastructure underpinning global operations. It boasts that
seamless transition happens over EDS’ Global Services Network (GSN), part of EDS' next generation Global Delivery System. The GSN connects EDS' Service Management Centers (SMCs) and data centers around the world in order to deliver uninterrupted service to clients and, ultimately, enable virtualization of data. The GSN creates a mesh of data centers making it possible to move a single application that EDS delivers for a client anywhere in the world while sitting at a computer screen. (http://www.eds.com/news/features/3931/)
MNCs’ ability to ‘source’ from different geographies is enhanced by acquisition. For example, IBM and EDS acquired leading Indian BPO companies Daksh (2003) and Mphasis (2007) respectively, enabling them to expand capacity at a stroke by buying local expertise.
In addition to the global MNCs, we note the role of global captives such as the Hong Kong and Shanghai Bank (HSBC), an excellent example of a company operating in one vertical and delivering in-house services from multiple destinations. Headquartered in the U.K., HSBC operates at least fifteen Global Service Centres in eight countries, with around 22,000 employees in India serving U.S. and U.K. customers. HSBC illustrates how the tentacles of global sourcing are reaching previously untapped destinations in the search for accessible skills at costs lower than in ‘home’ geographies. By 2008 it employed 500 in Malta providing voice services for UK credit card customers. This is an interesting example which indicates that cost is not the only factor driving locational decisions. These services were relocated from India to Malta following concerns over service quality that was being delivered from India. Higher costs in Malta were perceived as being offset by the greater linguistic and cultural empathy.
Many Indian BPO companies have been influenced by the need to emulate US service providers such as IBM and Accenture and have moved beyond single-shore offerings to become transnational in the scale of operations. The most significant case is of GE which metamorphosed from a ‘captive’ provider into Genpact, a third-party global BPO company delivering services across ‘an expanded universe of products and offerings’, and operating in a growing number of locations.
We provide end-to-end customer support for processes like Finance and Accounting or Collections. For example, we process and scan documents in Mexico for a customer. These documents are then used by our teams in India, China and Hungary for Finance and Accounting or Collections support. In addition, for the same customer we provide voice support for their global locations from all four of our region, depending on the language needs. A caller requiring Spanish gets routed to Mexico, while the one in English gets routed to India, Japanese to China and French to Hungary. Our customer gets seamless service and never feels the routing of work and processes that we do. (Pramod Bhasin, Genpact CEO in Nasscom, 2005: 16)