October 2007

Equalising growth in outsourcing

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Introduction

The IT enabled services (ITeS) constitute the fastest growing industry in India. Over the years 2001-06, India's share in global sourcing is estimated to have grown from 62 per cent to 65 per cent for IT and 39 per cent to 45 per cent for BPO. The preference for India is due to its advantage across parameters. The Indian IT-BPO sector is all set to achieve its aspired target of US$ 60 billion in export revenues by 2010. According to the 2006-07 Annual Report of Department of Information Technology, Government of India, the “key factors underlying this optimism include the growing impact of technology-led innovation, leading the increasing demand for global sourcing and the gradually evolving socio-political attitudes.” India-based centres (both Indian firms as well as MNC-owned captives) score very high on quality, and account for the largest number of quality certifications achieved by any single country. As of December 2006, over 440 Indian companies had acquired quality certifications. Out of these, 90 companies were certified at SEI CMM Level 5, which is higher than any other country in the world.The total number of IT and ITeS-BPO professionals employed in India is estimated to have grown from 284,000 in 1999-2000 to 1,630,000 in 2005-06, growing by over 340,000 in the last year alone.

Notwithstanding the fact that India scores high on almost all parameters, especially the availability of a large talent pool, there has been a growing concern about the need to pay attention to provision of quality human resource. There is a lot of talk about a 'Skills Gap', that needs immediate attention. The quality of graduates from most colleges in the country, barring a few select ones, is seen as not meeting the standards expected for gainful employment.

Saloni Malhotra, Head – Operations, DesiCrew Solutions, shares her views about the rural BPOs in an interview with i4d.

DesiCrew, a socially motivated BPO service provider, leverages cutting-edge technology and flexible business process knowledge to set-up delivery centres in rural areas. Their decentralised outsourcing model leverages the power of ICTs in providing quality and cost effective solutions to urban clients while opening up new income generating opportunities in 'Rural India'.

How do you operationalise these rural BPO centres?

Currently, we are running 10 rural BPO centres in different districts of Tamil Nadu. Each centre employs approximately 10 to 15 people and most of them are from rural areas. We follow a three phase interview system. After their selection, we provide them rigorous training on various skills necessary for their efficient functioning. Our base office at Chennai then gets jobs for these centres, and distribute amongst them equally. Currently, we are having two shifts spanning over 7 am to 7 pm.

What is the socio-economic profile of your employees?

Our employees are from different religions and socially backward communities like, OBCs and other scheduled categories. Their household income is equivalent to their individual income, so, you can imagine that these people are coming from economically disadvantaged communities. Most interestingly, 85 to 90 per cent of our total workforce are women.

What are the services you are offering and who are your clients?

Our data services division offers high quality, cost effective services ideally suited to digitisation of high volume data such as a data base and a mailing list compilation, key from images, data extraction from web, electronic publication, file conversion, etc. We have worked with leading corporates, institutions, trade associations and SMEs from across India. We have worked with leaders in technology, publishing, BPO companies, education, and development sectors. Some of the clients include: Microsoft, MIH Web, IL&FS, and we also have a US-based client.

What are the key challenges you are facing in running these centres?

The frequent power failure and training employees to meet the international requirements are the key challenges in front of us. But, we are very much hopeful, that these are short term challenges , and can be overcome easily.

What is your vision?

Our vision is to build a new outsourcing model to provide employment in rural India with the following objectives:

New sources of skill enhancement – currently the opportunities available in rural areas are either related to agriculture or skills like masonry. Such opportunities will introduce the rural workforce to a new set of skills.

Increasing the purchasing power – new sources of income from the rural BPOs will ensure greater purchasing capability and help improve the quality of life in rural areas.

Increasing the income earning capacity of rural Internet kiosks – Additional revenue from DesiCrew would also make the existing Internet based businesses more viable.

Reducing the gender divide – Educated young girls and housewives who cannot traverse distances can be brought into the workforce, hence enabling the enhancement in existing household income levels.  

Slicing the pie

As far as dominance is concerned, it can be stated without dispute, that a very high volume of the  business is concentrated with the industry leaders. A conservative estimate could be as high as 65 percent. This is surprising given the commonly held idea, that the industry is characterised by low barriers to entry. So clearly, the growth pie has been cornered by a few leaders in the market. Even as far as growth is concerned the leaders are growing at a rate which is more than double of the other players. Apart from this, the share of the captive companies is fairly high. There are good reasons for the government to pay attention to this, and mandate measures to make the share of revenue more equitable. Also domestic centres must receive special attention. Giving a blanket tax holiday to the whole of the sector is an inefficient method. However, during the last few years the share of captive centres is showing a downward trend. The costs of a captive centre (outlocation) are more than that of a third party one (offshoring), and this in itself is a factor in the fall in the share.

The benefits of employment too could be said to have been cornered by the middle class. While the industry has created a significant new category of employment noted for its high levels of compensation, comfortable working environments, and opportunities for foreign travel, and produced a new kind of knowledge workforce, an open question is whether it is providing employment opportunities to a wider cross-section of society or is simply tapping into the existing educated middle classes. That is, has this sunrise industry provided employment opportunities to people from diverse regional, caste, social, and economic backgrounds, and offered equality of opportunity to both genders, or is it simply reproducing or exacerbating existing social divisions?

According to a study conducted by Upadhya, the majority of the employees come from the middle class, although some people from lower and lower-middle class backgrounds have also entered this profession. This pattern is not surprising, for it is primarily the middle class that possesses not only the economic means but also the social and cultural capital necessary to equip their children to enter this profession. Krishna and Brihmadesam argue that, access to appropriate information about career paths and opportunities is limited for those from rural areas or less educated families. According to their sampled study, with regard to religion, 88 per cent of respondents were Hindus, while only 5 per cent were Christians and 2 per cent Muslims. With regard to caste, Brahmins constituted 48 per cent of the sample. The predominance of Brahmins is not surprising, given the monopoly over higher education and formal sector employment that they have historically had. All upper castes taken together make up 71 per cent. Though this pattern could be less harsh for the ITeS sector, it would still leave a lot of scope for a more equitable distribution of employment opportunities in the sector. One must however be consistent with the fact that the government colleges around the country need major reforms including the mobilising of quality faculty and the extension of intake capacity. There is also a need for a thrust on the teaching of English, which is without doubt the dominating language of commerce. Many states are embracing the idea of training youth in English skills, as a necessary part of school education.

Rural bias

The 55th round of the Nation Sample Survey Organisation's data shows that 94 per cent of IT occupation workers are located in urban areas. Of the top 600 IT firms, 21.8 per cent are located in Mumbai, 20.3 per cent in Bangalore, 18.5 per cent in the National Capital Region, and 10.7 per cent in Hyderabad. 

The major source of hiring for the industry is the campus placement process, wherein all the major companies have developed college ranking systems, and they recruit people only from those with the top ranks. The large services companies usually visit the top 50-60 campuses each year; the MNCs and the medium-sized Indian products or services companies may visit about ten select campuses while smaller companies usually go to the same few colleges each year. The rankings of the top fifty colleges are more or less the same for all the companies, which means that they are competing for a limited pool of well-qualified engineering graduates, which in turn results in the increase in operational cost of the firm. It leaves out the rest of those second and third tier colleges.

Another important reason for the pattern of exclusion is the requirement that employees in the outsourcing industry be very conversant with English. Given the differential access to private English-medium education, this tends to exclude many from lower caste, rural, and less privileged backgrounds. One can safely argue that there is a direct relationship between economic class status and the proficiency in English.

HR managers emphasise that gender, regional, caste, or religious identity are irrelevant in the recruitment process, that the sole criterion is merit, and that the profile of the workforce will therefore reflect the diversity of the country. There are two flaws in this argument: first, empirically the workforce is less diverse than is often claimed; second, it ignores the social and economic factors that produce meritorious candidates in the first place.

Shifting base

The NASSCOM-McKinsey 2005 report says, though India churns out a large number of engineering and computer science graduates each year, as well as diploma and degree holders in IT-related subjects, a sizeable proportion of them are not considered suitable to be absorbed by the industry, or are employable only in low-level jobs. But while 290,000 engineering degree and diploma holders enter the workforce annually, according to one study only about 25 per cent of them  suitable for employment in the offshore IT-ITeS industries. (Summary of NASSCOM-McKinsey Report 2005, in NASSCOM Newsline No. 50, December 2005, www.nasscom.org).

According to Gartner Inc., India is likely to lose market share in offshore business proces outsourcing, from its current 80 per cent to 55 per cent by 2007, because of its, increasing cost of operations, lack of term-plan for improving infrastructure and increasing the supply of quality employees for the BPO industry.

It is in this backdrop, recent attempts by various young social entrepreneurs to establish BPOs in smaller towns and rural villages has given a big relief to the Industry. To name a few, DesiCrew Solutions, GramIT of Byrraju Foundation and Sai Seva Business Solutions. The rural BPO operations work out to be 40-60 percent cheaper than the urban counterparts.

GramIT is a Rural BPO initiative by the Byrraju foundation that enables villages to create wealth by participating in the new economy. Like how corporate India is the back office to the world, Byrraju foundation envisions rural India as the back office of corporate India, government, and other institutions. GramIT centres are owned, managed, and led by the community, offers training and employment to educated young men and women within their villages. Smart and dedicated graduates are selected to undergo an 8-10 weeks training programmes that includes computers and keyboard skills, and written and spoken English, basic numeric and commercial ability, quality assurance, office etiquette, and methods.
Sai Seva Business Solutions, Puttaparthi, located in the state of Andhra Pradesh provides high quality back-office solutions at much lower costs from a rural set up. The firm was established in May 2006, by four friends with marketing and business management experience, with the notion of tapping the potential of 8 million educated unemployed rural youth in the country. The firm has 50 employees, and most of them are youth from the surrounding villages, including a barber's son and a post man's daughter.

While many of the skeptics argue that getting employable youths in such villages could be a challenge, but these firms has broken the myth and already provided back office solutions to some of the major corporate and government clients. Most of these initiatives plans to expand their rural operations and have already started looking for locations.

We have an urgent need for more of these firms to break the various myths, and to pay heed to the untapped potentials of  rural India and most importantly to put in their efforts for an inclusive growth pattern in the country.  

References

  • Basant, Rakesh and Uma Rani (2004), “Labour market deepening in India's IT: an exploratory analysis”, Economic and Political Weekly 39:5317-26.
  • Krishna, Anirudh and Vijay Brihmadesam (2006), “What does it take to become a software professional?”, Economic and Political Weekly 41:3307 14.
  • NASSCOM (2004), “Strengthening the Human Resource Foundation of the Indian IT Enabled Services/ IT Industry”, KPMG-NASSCOM Report.
  • Upadhya, Carol (2006), “Employment and Exlusion in the Indian IT Industry”, National Institute of Advanced Studies: Bangalore, Accessed on 04-10-2007, URL: http://www.idpad.org/pdf/CAROL%20Upadhya%
    20-%2008.pdf

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