BPOs take a call from tier II & III cities

Written by Sarika Malhotra | Sarika Malhotra | New Delhi | Updated: Nov 29 2009, 06:36am hrs
This is an internal shift. The Indian BPO sector is expected to touch overall revenue levels of $6.8 billion by 2013. And the bulk of the revenue share is expected from tier II and III cities. Just as Pune, Mumbai, Hyderabad, Bangalore and Chennai have become global names , Mysore, Coimbatore, Surat, Varanasi, Gangtok, Ludhiana, Raipur are poised to in the coming decade. As Nasscom vice-president Raju Bhatnagar points out, Growth has to go beyond tier I cities; it has moved beyond the experimentation level to tier II & III cities. In the next 10 years, tier II cities will impact the business of tier I cities.

These cities offer significant cost advantage due to lower costs of living, a ready talent pool, and lower attrition rates. Arpan Gupta, manager (research & consulting-BPO & industry verticals), IDC, adds, Tier I cities have witnessed attrition rates of as high as 60%. Service providers and clients have become concerned about this trend as it translates into increased recruitment and training costs, impacts service quality and also poses a significant data security threat. Players are moving to smaller cities for better business and hiring opportunities.

Given their sizeable pool of graduates, tier II and III cities offer potential for growth. Karthik H, research director, Everest, expects growth in these cities to be in line with the overall market and also attract more international work with improvement in skill sets and infrastructure. Cities could adopt a targeted approach towards attracting investments by positioning themselves as providing delivery skills in specialised areas. For example, Ahmedabad can position itself as a hub for financial accounting while Nagpur could do so for logistics support, he adds. Going forward, he says both buyers and suppliers would need to ramp up scale and provide more value-added services for growth and customer retention. Suppliers also need to explore potential partners for business opportunities, such as JVs with banks to manage e-banking operations.

However, Mahesh Subramaniam, principal, AT Kearney, cautions, Despite the talent pool, the fundamental challenge in these cities is employability. English is a huge problem, hence the potential is wasted or limited to vernacular services. Also, a big challenge is to attract a good blend of middle and senior management talent to run these operations. TCS and Infosys are creating infrastructure and migrating their own talent to these towns to run operations.

Smaller cities also lag in terms of infrastructure and connectivity. For example Madurai suffers due to poor air connectivity. Organisations will have to invest more to develop a cohesive system. Bangalore has been able to grow owing to its knowledge economy model and Chennai has an advantage due to its financial base. It is important to create certain differentiators. Subramaniam adds.

With tier II cities in the US such as Albuquerque, Tulsa and El Paso playing a bigger role, experts think a comparison with Indian tier II & III cities is uncalled for. Even though we have witnessed enhanced activity in the US tier II cities, they dont pose much competition for Indian tier II/III cities. Operating costs in India are 60-70% less, Karthik H adds.

Agrees Bhatnagar: Globally boundaries are blending. India has inherent advantages as one service centre is able to cater to at least two languages.