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Economic growth forces Indian outsourcing firms to ship jobs

Economic growth forces Indian outsourcing firms to ship jobs
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First Published: Wed, Sep 19 2007. 12 09 AM IST

Other options: A Convergys Call Centre in Gurgaon
Other options: A Convergys Call Centre in Gurgaon
Updated: Wed, Sep 19 2007. 12 09 AM IST
Bangalore: 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.
Other options: A Convergys Call Centre in Gurgaon
But costs in India are climbing on the back of a robust economy that has attracted 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 US. But India now accounts for little over half the total, and rapid expansion in the Philippines and Mauritius has helped the company offset the impact of a stronger rupee. TMT Global plans to enter China and Vietnam soon.
The company sees its 2008 revenue jumping to $150 million (Rs607.5 crore) from $97 million in the last fiscal.
“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 Ltd, India’s second largest software services exporter, said it would buy three of Royal Philips Electronics NV’s back-office services units in Thailand, Poland and India to expand market presence.
The back-office services unit of India’s third largest software exporter, Wipro Ltd, plans to set up two facilities in China to tap growing business opportunities there, the company’s chief executive T.K. Kurien said.
India’s English-speaking workforce, a big factor in winning call centre jobs, faces competition from countries such as 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% in the next three-five years from about 60% now, according to US-based Tholons Inc., which offers management consultancy for offshoring.
India produces about 2.5 million graduates every year, compared with 400,000 in the Philippines, but only about 15% Indians are suitable for employment in the outsourcing sector.
US-based outsourcer 24/7 Customer, which has multiple facilities in Asia’s third largest economy, interviews 5,000 candidates a month in India, but is able to recruit only about 250, the company’s chief marketing officer V. Bharathwaj said.
This is pushing up wages rapidly as financial firms from Citigroup and HSBC Holdings Plc. to Standard Chartered Bank Plc. employ thousands at their back-office hubs in India.
Starting wages at Rs15,000 a month are still about one-fifth of what their US counterparts earn, but they are rising 10-15% a year.
Cost per employee for a back-office firm in Bangalore is almost similar to Manila, but is 20% lower in Guangzhou in China and 35% cheaper in Ho Chi Minh City in Vietnam, said Avinash Vashistha, chief executive of Tholons Inc.
Analysts said that while Vietnam does not have a vast pool of English-speaking manpower, it is a prime destination for non-voice back-office services, such as legal and medical transcription, claims processing, and finance and accounting.
Adding to the squeeze is the rupee—Asia’s best performing currency this year, which climbed to a nine-year high of 40.20 against the dollar—up 10% since end-2006, while the Philippine peso has gained more than 5%.
First Global Securities last month downgraded India’s IT services sector to “underperform,” citing the rupee and wage inflation.
Every 1% rise in the rupee impacts the services firms’ margins by 30-50 basis points, analysts said.
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First Published: Wed, Sep 19 2007. 12 09 AM IST