Growing pains dim India's outsourcing edge

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Bangalore, September 18:: Indian outsourcing companies are shifting some of their operations to China, the Philippines, Vietnam and Kenya in a bid to stay competitive as higher wages, expensive property prices and a rising rupee eat into profits.

Back-office services companies thrive on doing jobs such as taking customer calls, payroll management and accounting at a fraction of the cost for big multinational firms or governments.

But costs in India are climbing on the back of a robust economy that has lured skilled workers to other sectors, forcing companies to look elsewhere to stay in business.

"If I was only in India, probably I would have been worried to death," said Partha Sarkar, chief executive of HTMT Global Solutions Ltd.

The Bangalore-based back-office services provider used to generate all its revenue from India by providing services to its clients in the United States. But India now accounts for little over half the total, and rapid expansion in the Philippines and Mauritius has helped it offset the impact of a stronger rupee. It plans to enter China and Vietnam soon.

The company sees its 2008 revenue jumping to $150 million from $97 million in the last fiscal year.

"Three years back, I was completely exposed to rupee-dollar," Sarkar said. "Now it doesn't worry me. I have diversified my currency and country risk."

In July, Infosys Technologies, India's second-largest software services exporter, said it would buy three of Royal Philips Electronics' back-office services units in Thailand, Poland and India to expand market presence.

The back-office services unit of the third-largest software exporter Wipro Ltd plans to set up two facilities in China to tap growing business opportunities there, its chief executive T.K. Kurien said.

India's English-speaking workforce, a big factor in winning call-centre jobs, faces competition from countries like Kenya.

"When compared to India, we are better off in terms of salary and cost per seat, and we have a large pool of Kenyans with clear accents," said Bitange Ndemo, permanent secretary in Kenya's Information Ministry.

India's share in the global back-office services pie will drop to 50 percent in the next 3-5 years from about 60 percent now, according to U.S.-based Tholons Inc, which offers management consultancy for offshoring.

SKILLS SHORTAGE

India produces about 2.5 million graduates every year, versus 400,000 in the Philippines, but only about 15 percent are suitable for employment in the outsourcing sector.