Rural route of a global BPO

Written by Diksha Dutta | Diksha Dutta | Updated: Jul 16 2012, 07:14am hrs
Imagine if as a global company you get to run an office which does not need a fully air conditioned environment, no long route transport facilities for employees, and still there is an enthusiastic workforce which is very eager to learn. This was the ambiance in the brand new campus opened in Shimoga by Xchanging, a $1.03 billion BPO. Shimoga is in the central part of the state of Karnataka and venturing into small cities is just one of the big plans that Xchanging has in mind. Other goals include its plans to double the headcount in the next two years. Focus into newer verticals like engineering, research and development (ERD), healthcare and telecom apart from established verticals like banking, financial services and insurance (BFSI). The company is also focusing on its IT products and services business which now contributes 30% revenues and has jumped from 15% back in 2009.

The game changer for Xchanging was the acquisition of Cambridge Solutions three years back. Ken Lever, CEO, Xchanging says, The difference between IT and BPO is becoming blurred.

Acquiring ITO capabilities has helped us in winning many end-to-end deals, that too at a competitive price.

Even the fact sheet of the company shows that the purchase of Cambridge has helped Xchanging to focus on newer segments and geographies. Nimish Soni, executive-director, Asia Pacific and offshore services, Xchanging says, In 2009, Xchanging acquired Cambridge Solutions which brought ITO capabilities to the company. Since then our IT services and software platform business has increased to 30% of the total revenues. In 2009, 80-85% of the total revenues was our BPO business and now it is 60-70%. Even Genpact, the countrys largest BPO has been increasing its IT services revenues, but does not include IT products. For Genpact, revenues from IT services were approximately 24.2% of total revenues for the first quarter of 2012 , up from 12.8% for the first quarter of 2011.

It was not just the focus on IT products, Xchanging also started concentrating on the Australia, US and Asia Pacific business post the Cambridge Solutions acquisition. Prior to this, the companys major area of focus was Europe and UK. Mentions Soni, We plan to double our headcount in the next two years. We are expanding into tier-III locations like Shimoga and Solan in India; the company has a combined employee strength of 700 people in the two locations. Xchanging has a strong onsite presence too with 3,000 employees in Germany, 350-400 in Malaysia, 300 in Australia, 2,600 in Europe and around 3,500 in India.

Speaking on the specific India business, Soni says, We started concentrating on the India-to-India or domestic business in the middle of last year and have already signed seven blue chip companies in the banking and insurance space. As of now, Europe and UK is the biggest market for Xchanging with more than 50% of the revenue. Then comes the US with 20% revenue, followed by Asia Pacific with 20-25% of the remaining revenues. However, Soni says that in the next two to three years, the ratios will change with growth coming back from the US and Asian countries. Overall, 40-45% of Xchangings business is from BFSI, but the company is now giving equal importance to newer verticals like engineering services, healthcare and telecom.

The small town story

A small town with high dreamsthis is Shimoga, 275 km away from the Silicon Valley of India, Bangalore. Xchanging realised the opportunity which lies in small towns of India five years back when it entered Shimoga. In 2010, the company also entered Solan, a tier-III location in Himachal Pradesh with a pilot project. These centres usually have a 30% lower running cost than metros.

Soni notes, We now have customers like L&T Insurance which has given its first domestic deal to a rural BPO. We should not forget that the India-to-India business is growing at 50% year-on-year. Moreover, tier-III cities will help us in serving the domestic financial services markets. This market has an opportunity not only in financial services, but also in cloud and desktop management for small and medium sized companies.

Today, the over 500-strong workforce in Shimoga provides level technology and processing services to banking, financial and insurance clients across geographies. Xchanging, since its foray into Shimoga in 2008, is working closely with leading universities and education institutes in the region to increase the employability of students and make them industry-ready. Xchanging has plans to introduce a certificate programme in BPO operations and software development in collaboration with Kuvempu University from this academic year.

In the next 3-4 years, we will do the same kind of work in these small cities as we do from the metros. We do both IT and BPO work from the Shimoga centre as of now, and have also started doing product development here, says Soni.

Giving a global picture, Ken Lever says, BPO deals are also going to other countries like the Philippines, Sri Lanka and China because of the cost advantage and thus we need to expand in smaller cities to let the work be in India. At the same time, we are also giving customers good quality work.

It is true that salaries in the US are going down, but are heading northwards in the Indian BPO industry. Our industry needs measures to maintain the gap between Indian and US salaries. Only then we will be able to give the cost advantage to US clients. Going to small cities, is one of the measures which can help maintain this gap.