India is slowly becoming less attractive as a destination for information technology and back-office service companies.
Talent is concentrated in big cities, forcing companies to feed off one another’s workers. Real estate costs are high in India. High transport costs — as high as 10% of total costs for some providers — don’t help.
A new research report by International Data Corp. (IDC) has nailed India’s eroding competitiveness in such services. Bangalore, New Delhi and Mumbai remain among the top 10 cities in the Asia-Pacific region to deliver offshored tech and business process outsourcing, or BPO, services from. But, Mumbai has slipped to seventh position, from fourth when the first survey was done in July last year. Competing cities Auckland, Beijing and Brisbane have moved up (so has New Delhi and surrounding regions to second position, behind Bangalore, from third rank in 2007) in this year’s survey from last. Kuala Lumpur pushed out Sydney from the list this year. IDC attributes this shuffle to rising federal and local government support at some of the cities that have gained, as also rising labour and other costs in India.
Indian companies can do little to control labour, land and transport costs. The way out for them is to offer services of increasing value to offset cost challenges. Billing rates in such instances are often $25 an hour, which is better than in some tech service contracts and far above the plain vanilla call centre rates of sub-$10.
The BPO industry has been clamouring for tax and other fiscal incentives for its business, which it argues is still in its infancy, unlike IT service firms that have reached where they are over nearly three decades. But, that pitch is best ignored because increasingly the cost of service delivery is becoming less of a factor in winning offshoring deals. Sure, there are cases where it is indeed a deciding variable, but firms here are best leaving those low-hanging businesses to cities such as Kuala Lumpur and Dalian to compete for. India has two-thirds of the offshored tech and BPO services market and needs to work on reaping value from such work rendered here, not necessarily volume.
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