The numbers certainly predict a great future, but the Indian call centre industry is at the crossroads. Even as industry consolidation may soon take place with the big guns elbowing out, or buying smaller players, competition from other countries is rising, and low cost combined with high value is emerging as the answer.
The current decade has been dubbed by several industry watchers as the decade of IT enabled services. Terms like Business Process Outsourcing are the buzzwords of this wave. This trend assumes greater significance for India because of the fact that India has been the hub of the global call centre industry, a sector which is perhaps the biggest components of IT enabled services. Nasscom’s estimates that India’s call centre industry has a turnover of Rs 850 crore, besides employing 16,000 people as of March, 2001 with Rs 400 crore and 8,600 being the corresponding figures for the previous year bears ample testimony to the growing clout of this industry.
If these figures are not enough, Nasscom projections for the future predict that India will become the undisputed supremo in the call centre game. The industry’s size is predicted to reach Rs 1,000 crore in 2001-02, Rs 3,000 crore in 2002-03, Rs 7,500 crore in 2003-04 to Rs 20,000 crore in 2007-08. It is further estimated that during 2008, this segment will create employment for 2,70,000 people. The year 2002 will definitely be the year for the call centre industry’s take off. By end-2002 about 8,000 seats shall come up while India should witness a 45 percent CAGR for next five years.
Some like Milind Chalisgonkar, CEO, mSource India, believe these numbers need further explanation. According to Chalisgaonkar, the industry in India currently has two segments domestic call centres and international call centres. The domestic call centre segment employs an estimated 5,000 to 10,000 people, and is growing at 30-40 percent per year while the international call centres employ over 25,000 people and is growing at 50-70 percent per year.
Prof Michael Dertouzos of MIT predicted last year that India could earn as much as $1 trillion in the next five to seven years through low-end IT activities, particularly outsourcing and call centre. This, he predicted would generate about 50 million jobs at an average salary of $20,000 per annum. Call centres are expected to comprise 25 per cent of the outsourcing industry over this period. The share of call centres in the total IT software and services revenues stood at 10.6 percent during the year ending March 2001. It is projected to reach 20 percent of the total revenue of $87 billion targeted by Nasscom by 2008. As per the IDC estimates, the industry is set to clock a compounded annual growth rate of over 50 percent until 2005, ahead of China’s 40 percent-plus growth. In fact, Indian call centres are poised to register the highest growth rate within the Asia-Pacific region during this phase. McKinsey, which foresees a global market worth $140 billion for call centre services by 2008, has predicted that India’s share could be as much as $9 billion by 2004 and $17 billion by 2008, thus providing employment to as many as 1.1 million Indians.
Growing to greater heights
Going back in history, the Indian call centre industry was in a nascent stage till 2001. However, it is progressing well on the learning curve with already with about 150 big and medium call centres up and running since the year 2000, with the average number of seats being 100-200 per call centre.
The prelude to this call centre boom came in the early nineties with several MNCs setting up dedicated facilities. Most of the players were banks, insurance companies, airlines, IT and telecom companies who were the first to realise the benefits of shifting their remote processing work to a cheaper base like India. Since then, major players like GE, American Express, Standard Chartered, Citibank, HSBC, Deutsche Bank, British Airways, Lufthansa and Swissair have either set up facilities that they are expanding, or are in the process of doing so. One example is the World Network Services (WNS) which was set up in 1996 as a wholly owned subsidiary of British Airways. Reveals Siraj Irani, head-resource management, WNS, “Our current strength is 1,500 and we plan to add another 12,000 people in the next 5 years with one new location and 1-2 new clients every year. We are currently handling the South Asia executive club of frequent fliers for British Airways, but we aim to capture the entire British Airways account.”
However, the real shot in the arm for the call centre industry came from third-party service providers. More than 100 pilot projects were completed successfully in the past one year and these call centres are now ready to ramp up substantially. It is a long and pretty exhaustive list: Daksh eServices, TransWorks, Tracmail, Air Infotech, mSource, eServe, Sapphire Callnet, Minerva, Hero Servit, Customer Asset, Sitel India, Intelenet (a TCS and HDFC company), Intellicom, (a Jindal group company), vCustomer, Zenta Technologies, Cybiz, Seva, Flex, 24/7 customer, iEnergiser and EXL Services, eFunds International, Global eCMS (Global Tele Systems), Spectramind and IT&T, among others. Even state-owned telecom behemoths like BSNL and MTNL are in the process of making a call centre foray either directly, or through a JV. Those making a beeline include brick-and-mortar companies, New Economy IT and telecom players, real estate and construction companies, and even garment exporters. The most recent entrant in this sphere have been the software companies, both Indian as well as MNCs. Probably, the slowdown has led them to look at alternate avenues for revenue.
After the initial euphoria, as the call centre industry started emerging, many doomsayers were ready to write its epitaph. However, most call centres appear quite bullish about their prospects. In fact, the general sentiment seems that the churning and consolidation happening now will lead to an even more vibrant and robust call centre industry. The figures doing the round represent the serious facet of the business that is now taking off. Explains Prakash Gurbaxani, CEO, 24/7 Customer, “The Indian call centre market is entering into a second phase of development. The first phase saw a rush of companies entering the call centre space. This second phase will see the emergence of 10-15 leading IT enabled services companies in India. While these 10-15 companies will grow phenomenally during this phase, the multitudes of other IT enabled services companies unable to source customers and fill seats will go out of business or be forced to consolidate.”Wipro acquiring Spectramind, or HCL and Siemens setting up call centres are cases in point.
“Many companies who have announced grandiose plans do not mention that what they have is a desire to enter the sector, but not the capacity. They may claim that they have a 300-seat centre or 400-seat centre, but merely having tables and chairs in a room does not make a centre,” says Sanjeev Aggarwal, CEO of Delhi-based third-party service provider Daksh eServices. K Ganesh, CEO, CustomerAsset echoes this sentiment. “The industry is clearly segmented between the larger, committed players who have the domain expertise to execute this business and the smaller players who have just entered the market and in many cases are not professionally run. I expect this segment to witness ongoing consolidation activity. In fact, we were the first company in India in the CRM domain to complete an acquisition when we acquired TeleWeb Worldwide, a Denver-based company.” Abhay Chauhan, director-business development, TransWorks, is even more scathing. “No doubt the call centre industry is in a bad state, and I think that the situation will worsen. Lots of call centres have been set up without taking into account what clients need. They thought that there was easy money in this field. Of the existing call centres, around 25 percent will succeed, and the rest will not last another year. Even if they do, they will probably go in for consolidation or will be taken over by bigger companies. To run a successful business you need good infrastructure set in place and you need to deliver on the promises made. You also need to hire the right people and provide them with the right training.”
The department of telecom had granted approval to over 70 new call centres till April 2001. There are many more in the pipeline. Already, about 500 foreign companies outsource work to about 60 phone-based call centres. There are between 25-30 established back office operations and an additional 30-40 companies have set up Web-based contact centres. Of the phone-based call centres, at least 10 percent are wholly-owned by MNCs servicing their own internal requirements. One example is the Navi Mumbai-based Hughes Tele.com call centre. Says Col Naveen Bhasin, assistant VP, “Currently we have 65 seats which is sufficient as we do not have any outsourced clients right now. However, as even the number of internal clients keep rising, we plan to scale up to 200 by fiscal 2003.” Another example is the in-house Cisco HR call centre called HR Connection recently set up in Bangalore.
The rest are Indian companies providing customer interaction services to overseas and Indian companies, independently or through joint ventures. Of the 25 back office operations, 50 percent are wholly-owned, while the rest are Indian companies providing these services to several customers independently, or through joint ventures. The cities witnessing maximum action are the tier-one cities like Gurgaon/Delhi, Mumbai, Hyderabad, Bangalore, Chennai and Pune. Tier-two cities like Ahmedabad, Trivandrum, Chandigarh, Goa, Indore, Bhubaneshwar, Calcutta, Bhopal, Mysore and Noida are also expected to emerge as significant remote processing locations. A case in point is the Gujarat Narmada Valley Fertilisers call centre developed by Azure Technologies in Ahmedabad. Says J S Kochar, chief (IT business), “The call centre currently has 300 seats capacity and very soon it will be expanded to 400. The investment made till date is well over Rs 10 crore, with a further increase of Rs 2-3 crore in the pipeline.”
Will the slowdown hurt?
How is that most call centres still remain bullish despite the US economic slowdown and the WTC attacks? This becomes especially pertinent once you consider that a huge chunk of the outsourced business for these call centres originates from the US. The answer becomes evident from the near unanimous opinion of almost all the players that the economic slowdown has in a way revved up business instead of throwing a spanner into the works.
The future indeed looks rosy for the call centre industry in India. Says Hemant Kohli, CEO, IT&T, “The quantum of back office and call centre work that can be moved to India is tremendous in billions of dollars. This industry, like software, requires tremendous technology understanding with the capability to have systems, procedures and processes in place. The success of the venture is dependent on the team and people motivation coupled with complete service and customer orientation. Companies who are not from this domain have found it difficult to obtain success.” India offers the best value proposition as an IT-enabled services hub. This has already tempted some Ireland and Singapore-based companies to back-end their operations in India, since skilled labour is becoming an increasingly scarce resource in these countries.Several companies in the financial service sector, for example, are known to have saved at least 50-60 percent of their process costs by shifting out their back office processing work such as voice-based customer support, account and transaction processing and management and fraud and risk management, or even outsourcing simple functions as telemarketing.
Yet another compelling factor in India’s favour is that companies can capitalise on its unique time zone position. India offers a virtual 12-hour time zone difference with the USA and six to seven hours with most European markets. Thus, by relocating back office operations or a call centre to India, a company in the US can have 24x7 operations by running shifts in India, and thus save costs. Since Indians have little qualm in working on night shifts, a Delhi-based centre for instance can offer day and night uptime for a US operation. “Companies can easily provide services round-the-clock without having to worry about hiring expensive agents who are difficult to get for night operations in the US or Europe,’’ says Rajeev Kamath, senior projects manager, Intelenet. Besides, India has a huge pool of English-speaking and computer savvy graduates who can cater to the growing demand for professionals in this industry with minimal training. It also has proven IT and technical skills.
Value proposition
The entire spectrum of the remote-processing ladder can be divided into following segments. At tier one is data conversion, at tier two rule set processing, at tier three is decision-making or problem solving.
After this comes direct customer interface at tier four, and finally, expert knowledge services like financial accounting services and remote applications, network or technology maintenance. The margins improve as one moves up each step in the value chain. Most call centres in India charge between $15-$25 an hour per seat, but the fee are marked-up depending on the nature of the job. According to Krishan Dhawan, chief marketing officer, Exlservice, margins in the case of a well-run call centre can be in the range of 25 percent per annum. “They are better when you have a handful of clients, rather than one dedicated client, as the latter increases your dependency on that client who can therefore negotiate a better rate.’’
This is where the role of middlemen and the smaller players comes into the picture. Large US companies give contracts to large US remote processing companies, which typically run centres with 10,000 or 20,000 seats, and above. So far, much of this business that has come to India has come through the latter wanting to outsource some of their own work, mostly on a test basis. Contacts obviously play a big role in wresting business as most companies cannot afford to market themselves. “Large outsourcing companies like TrueDial, Convergys, Teletech and Bechtel and others run huge remote processing businesses. Faced with a demand to lower the per-seat cost, they are willing to outsource some of this business to other destinations provided quality is maintained. When Indian consultants contact them with a guarantee for both, they are willing to outsource their business,’’ says Sunil Kakodker, VP, Tracmail.
Small call centres sit at the bottom end of this chain. The rates per seat get stripped further with each link pocketing a portion for the favour (read business). “Under pressure to recover the investment and also due to lack of understanding about the market, an aggressive band of smaller players are quoting rates like $10 or $12, little realising that at such rates they will either go in the red, or make wafer-thin margins of 8 to 10 percent,’’ points out Navi Mumbai-based Global eCMS (a Global TeleSystems division) vice-president, Ashvani Srivastava. Smaller players having 50 or 100 seats, who have made the investment but have been unable to bag contracts, are even willing to offer free 50-seat pilots for three months to their clients in their quest for larger business. This, as well as the low remuneration like $10-12 per seat, only pushes their break-even point farther.
Competition from foreign shores
How does the Indian call centre industry face up to competition? Ireland became a hot destination for locating such work in the past decade. But Ireland has its limitations. While the cost advantage to a US company shifting work to Ireland is no more than 20 to 30 percent, the same works to well over 50 percent with most Asian countries, particularly India. Nevertheless, companies are reaching out to countries like Mexico, Philippines and Malaysia, which have also emerged as remote processing hubs.As per industry estimates, there are more than 1,00,000 call centres worldwide. The number is expected to grow to 300,000 by 2002, employing approximately 18 million people. By 2003, $60 billion is expected to be spent on remote processing: call centres, back office operations, data conversion and financial accounting operations.
But the real threat to India comes from Australia, Phili-ppines, and most notably China. However, not everyone is willing to buy this argument. India has the second largest pool of technically qualified and English speaking manpower in the world. India is far ahead of other countries like China, Philippines, Singapore, Hong Kong, Australia, UK and Ireland in terms of qualifications/capabilities of workers, and the quality of work produced by them.
The country also turns out to be a very attractive location when it comes to aspects like communications, infrastructure and facilities. “Countries like Australia may be slightly more advanced than India as far as infrastructure and communication networks are concerned, but it cannot boast of a workforce of India’s size,” feels Kohli. Australia has been an outsourcing destination for North America and Europe for a long time now. In fact, India became attractive as a destination only after Australia and Ireland reached a saturation point. Therefore, Australia is an established competitor and not a new one. Adds Samir Chopra, CEO, CybizCall, “Singapore has its limitation, vis-a-vis number of people available for the job and real estate rates. We firmly believe that these destinations will not have a significant impact on the Indian call centre industry.” Adds Kamath, “Though Philippines has the English-speaking advantage, the uncertain political situation there acts as a deterrent for the call centre industry.”
However, not everyone shares the optimism that India will face no competition from these countries. In fact, it should be a cause for worry to India that countries like Malaysia, Philippines and China are developing national-level strategies to woo the remote processing industry. These countries could emerge as a big threat for the Indian remote processing industry, which in spite of the huge potential and several positives in its favour, is still in a nascent stage. These countries also share some of the advantages India has, primarily a large affordable workforce.
“The Chinese are still several years away from being a threat in the area of customer contact management. Indians have the ability to think in English since they learn English in their formative years,’’ points out Anwer Bagdadi, head- IT enabled services, Lawkim, the Thane-based call centre from the Godrej group. India’s better qualified and more disciplined workforce also works to its advantage. But for how long? “Within eight to 10 years, China will have a much larger English-speaking workforce. They will give us a run for our money in both IT and IT-enabled services,’’ argues Srivastava. Warns Chalisgaonkar, “It is time to sit up and take note, otherwise, we will be left behind as the numero uno investment destination for the remote processing business.’’ A good beginning may be made if the Indian government decides to subsidise the cost of training of call centre agents. It is not unheard of. Ireland picks the tab on training which goes to improve the quality of workforce and encourages the entrepreneur to take care of other aspects, points out Kakodker.
This article first appeared in Express Computer
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