Businesses perception a stumbling block for rural BPOs

Written by Debojyoti Ghosh | Bangalore | Updated: Sep 18 2013, 09:13am hrs
Indias $20-billion business process outsourcing (BPO) industry, which has been a role model for many emerging markets, has not been able to replicate this success in rural India, stymied by the perception of customers. The hesitation on part of businesses to outsource their requirements to centres located in semi-urban or rural areas has become a major stumbling block in the growth of rural BPO firms.

According to investment research firm Venture Intelligence, the space has managed to attract just one funding last year and no deals so far this year. In 2012, Ventureast and responsAbility invested $1.3 million in Chennai-based rural BPO DesiCrew Solutions. The challenge for investors is to build a sustainable and commercially viable business in the long term.

The obvious benefits rural BPO firms offer in terms of cost and low attrition are offset by the fears of clients about the quality of services and data security done from such locations. Continuity of services is another issue.

It is about client mindset. There is some kind of apprehension in the minds of clients when you say that a job is done out of a remote centre in a rural area. Thats why we prefer not to call it a rural BPO centre, but a low-cost or sustainable centre model. Clients typically prefer it in known locations, where they can visit easily, Infosys BPO India business head Narayanan Sampath said.

Infosys forayed into the rural BPO space in 2010 with partnership with two players Chennai-based DesiCrew and Bangalore-based RuralShores and has about 120 people in six centres spread across states of Karnataka, Tamil Nadu and Uttar Pradesh.

Sridhar Mitta, managing director, NextWealth Ventures, a social entrepreneurship organisation, which runs three rural BPO centres concurred that there is a mindset challenge with customers unwilling to give business to them.

However, some are of the opinion that despite these challenges, it is possible to break certain processes to get work done out of rural BPO units. Quatrro CMD Raman Roy said, Many large companies do not have the mindset of running a rural BPO business and one needs to explode the processes.

According to Roy a BPO company would have to breakdown the businesses they are getting into different parts and determine what can be done out of a rural centre while the rest being delivered from the metros. Gurgaon-based Quatrro has over 9-10% of their workforce in the rural centres.

Rural BPO business is a small segment of the overall industry. Ameet Nivsarkar, vice-president (global trade development), Nasscom, said rural BPO firms have still not proved to be successful owing to multiple factors like infrastructure, education, security issues. He added that over 95% of the industrys business is generated out of top six cities.

Experts feel one of the reasons for the lack of defining success in rural BPOs is attributed to the viability model. For investors in rural BPO ventures profitability is a concern as margins are low.

Key challenge is profitability. Though the costs are lower, the work, in the most part, is not of high margins due to the nature of the processes. It is important for rural BPOs to leverage on their competitive advantages, beyond the low cost advantage, and attract higher margin processes, Lok Advisory Services co-founder Vishal Mehta said. Lok Capital, a venture capital firm focused on the bottom-of-the-pyramid market, invested $3 million in RuralShores in 2011.

Early this year, RuralShores said it plans to employ over 100,000 rural youth by 2025 as it ramps up its cloud-based enterprise resource planning (ERP) business in the country. The rural BPO company, which currently has 17 centres across 7 states employs over 2500 rural youth. It plans to open 500 centers, one in each rural district of the country by 2020.

However, those in the business feel that a rural BPO firm is a viable model. Mitta of NextWealthVentures said, One needs to think like a big company of multiple delivery centres with a common thread of service, adding that each centre should be run by an entrepreneur who has an emotional connect with the place.