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BPO industry is going to hinterlands - Views on News from Equitymaster
 
 
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  • Sep 14, 2011

    BPO industry is going to hinterlands

    "Computer and English" are still status symbols in rural India. "Women going to office" is still a remote concept there. But things are changing in some of the villages in India. Information Technology (IT), which has been an integral part of the Indian growth story in recent times, is now changing the face of the hinterlands of the country. Companies in the software industry are setting up Business Process Outsourcing (BPO) centres in the rural area. Not only are small companies like DesiCrew, SourcePilani, RuralShores Business Services opening rural BPOs, but IT majors such as Infosys, and Wipro are also opening BPO centres in rural area. Some big corporate houses like Tata, HDFC have also opened BPO branches in rural area. But these are not as common as software companies.

    Initially BPO centres were set up only in the urban area because of availability of English speaking people, infrastructure etc. But this trend is changing now. The reason lies in the genesis of the BPO itself. No doubt, the main drivers of this industry have been higher efficiency, infrastructural support and available skill-sets. However, the existence of BPO relies on its cost-effectiveness.

    The US$ 14 bn Indian BPO industry is now facing steep competition from many parts of the world. Running a BPO centre in a cost effective manner is getting more difficult by each passing day. Real estate prices are spiraling not only in metros like Mumbai, Delhi but also in tier-II cities. Salary and wages are also going out of control in big cities. Due to higher salary expectation and better job opportunities in urban India, attrition is adding to the woes of BPOs. All this is destroying the cost advantage of the Indian BPO industry. Therefore, to remain competitive in the market, companies are opening BPO centres in rural India.

    In rural areas, companies need to pay around just half of the salary they pay in urban areas. Land prices are just a fraction of the prices in urban areas. Here companies do not face the attrition problem much. They mostly prefer employing female employees to lower the attrition. Hence, running costs of a BPO centre substantially declines in rural areas.

    Though there exists a cost advantage, the bigger question is the ability of companies to fulfill the service level agreements (SLAs) while running the BPO centre from a rural area. The interesting point is that companies are not facing problems on this front as far as skills are concerned. They are mostly providing services like domestic voice services, non-voice services like data entry, typing, scanning, index preparation of customers, data conversion etc. These are low-end services which do not require very high skills. After some training, people in rural areas are successfully able to fulfill these tasks. With regards to power shortage problem, companies are employing alternate power sources.

    Despite all this, it is not easy to convince a client to opt for rural BPO services. Companies need to constantly pitch for clients -- proving their capabilities, emphasizing the strength of their infrastructure (redundancies in power and broadband network) and pushing the cost-value advantage. As a matter of fact, the National Association of Software and Services Companies (Nasscom), the regulatory body for the Indian software industry prefers the term "non-urban" to "village" or "rural" because prospective clients may associate rural with backward. Though this is just semantics, it helps people get over that mind-set.

    Rural BPO brings financial empowerment, technologies, and new job opportunities to rural areas. It also helps curb the migration of people from villages to urban parts of the country. However, rural BPOs face several challenges such as erratic power supply, bad broadband networks etc. Looking at the benefits, some state governments are giving incentives like some initial capital, training cost aids to promote these initiatives.

    Rural BPO is still in its nascent stage. Rural BPO centres are growing by each passing year. However, the future of this depends much on the government's commitment towards power projects, broadband connectivity in rural areas. Role of NGO (non-governmental organization) is also very important here. NGO connections can help rural outfits tap into extensive networks of companies willing to contract work to these centers as part of their corporate social responsibility initiatives.

    Indeed, the BPO industry definitely seems a new ray of hope for rural India!

     

     

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