BPO cos face hurdles in smaller cities

Written by Shruti Ambavat | Mumbai | Updated: May 14 2012, 08:40am hrs
BPO firms need to push into smaller cities to make operations more viable, but they are still shying away from tier II and III cities on concerns of data security, lack of skills and the absence of the scale of incentives from the government.

When we spoke to some 12 large BPO players in the country, the senior management showed a lot of enthusiasm, says Rita Soni, chief executive officer at Nasscom Foundation. But when it comes to actual implementation, they cite a lot of caution towards getting into these places, she says.

Sustaining operations in such cities is difficult, say companies. We opened up a BPO centre in Srinagar only because of the corporate social responsibility factor. Otherwise, it is difficult to sustain, says Sandip Sen, president, global CLM business unit at Aegis, the BPO arm of the Essar Group.

We feel there is lack of government support and lack of talent that makes it difficult to push the rural or tier II BPO industry growth, says Sen of Aegis, It is not easy to convince clients as they do not want to take the risk of being the first in tier II cities.

Soaring real estate prices across India have diminished the low-cost advantage of smaller cities. The only difference is the labour cost and lower attrition, says Sen. BPO industry typically sees a very high attrition rate of 50-60%.

But the initiative will not grow fast if there is no infrastructure development, government help, says Sen. The company is in the process of setting up a unit in Chindwara with an initial capacity of 300 seats and may exceed it to 500-600 seats.

Large companies are still educating their clients on making the shift to smaller cities. We need to keep convincing clients on value, data privacy and infrastructure ability of the smaller cities, says A Radhakrishnan, vice-president and EC member at Infosys BPO. Infosys had tied up with a rural BPO firm Desi Crews last year for its own work in Kapu, Mangalore. The other rural BPO firm it has tied up with is Rural Shores.

Direct partnership for international clients with rural BPO firms will not work because of security concerns, says Radhakrishnan of Infosys BPO.

Large firms feel this is the best way to help sustain smaller players in the industry and solve high attrition problem at the same time. If you give them the same city of their origin with slightly lesser salary, they will not complain and won't leave for larger pay packet, unlike in large cities, says Radhakrishnan.

The problem of convincing clients is a major one. International businesses do not like to go to tier II cities for business, says MG Raghuraman, senior vice-president and chief information officer at IT firm MphasiS. The comfort factor is missing. Clients are worried about data security, risk management and lack of talent pool, he says. MphasiS has a 1,000-seat centre in Baroda, 4,000-seat centre in Indore, 1,200-seat unit in Mangalore and 400-seat unit in Puducherry.

Language is another hurdle. Language could be a barrier while setting up centres in smaller towns, says Raghuraman. You have to localise the centre and train the people there accordingly, he says.

Lack of skills are other issues which slow down the push towards rural BPOs. The problem for large companies is that they have the bandwidth to manage centres with 2,000-3000 seats. So, it becomes difficult for them to go below that, says Kunal Parikh, regional business development manager (west) with RuralShores Business Services. The firm is a rural BPO firm.

There are certain limitations on setting up centres in smaller cities like lack of availability of senior talent, says Soni of Nasscom Foundation. The BPO push in tier II and III cities is definitely happening but clients are more worried about the quality of work at these centres, says Milan Sheth, partner and national leader (IT practice) with consulting and audit firm Ernst & Young or E&Y. Indian firms will go to these towns if they find enough talent, otherwise they wont, he says.

Skills required for certain fields are very niche and specialised like investment banking, and rural BPOs do not have the required skill set, says Kaushal Mahajan, head BPO delivery with IT solutions and consultancy firm Broadridge Financial Solutions (India).

Large companies are either setting up their own centres in smaller cities or partnering with smaller players already there. There is a 60:40 work split between getting business on their own from these cities and partnering with local players, says Soni of Nasscom Foundation. Client-related work is still with the large cities, only the back office processes have been outsourced to smaller cities, she says.

However, the model will work eventually as industry has already geared up to realise that. Indian companies are forced to innovate today to maintain margins and this push to smaller cities is part of that, says Mahajan of Broadridge Financial Solutions.

A lot of players are trying it and we are also looking at it, says Partha Desarkar, chief executive officer at Hinduja Global Solutions, a part of the Hinduja Group.

We have no other option but to find a solution to make it work and set up centres in smaller cities, says a senior executive at a top IT firm in India. It will help the industry tremendously and is the only alternative left, he adds.

Attrition is extremely high in BPO and the shift to tier II or III cities will solve this problem, says A Radhakrishnan of Infosys BPO. This is the only way to sustain the industry, he says.

Companies need to find a model where they can find work that can fit the rural BPO system like non-client processes which is also low on risk factor, says Sheth of E&Y.

Rural BPO push will be an alternative destination for Indian BPO firms, says Soni of Nasscom Foundation. If large companies rotate their senior management every six months, the talent lack problem can be tackled.

We need to convince clients on the social impact they will be making through centres in smaller cities, she says.