Outsource to India. Author Mike Mattsen CEO
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1 Outsource to India Author Mike Mattsen CEO
2 01 Executive Summary "India has always been a large delivery centre with size and the ability to scale and we are seeing the pendulum starting to swing back to India" TJ Singh, vice-president at consultancy firm Gartner told ET. Last year, the Associated Chambers of Commerce and Industry in India estimated that the country had lost over 50 per cent of the international voice center business to the Philippines. At the dawn of the Indian BPO industry in the nineties, voice call centers handled customer service, telephonic sales and collections. Being a BPO leader for more than a decade, the country started losing business to the Philippines (more in the past seven to eight years) owing to a variety of reasons. While the Philippines has an advantage with closer cultural affinity & good infrastructure, as the operations progressed they struggled with more restrictive hiring practices (harder to remove underperformers), rising attrition levels (two primary markets meant lots of same city competition for talent) and higher wage costs - all of these factors eventually leading to business risks. The BPO market in the United States is expected to grow at 4.3 per cent CAGR, reaching $97.3 billion in 2017, according to research firm IDC. Even with increased emphasis on firms offering work from home agents and the like, the US marketplace will continue to feel cost pressure and continue to look offshore and near shore for at least a significant chunk of their voice and back office needs. Recent trends show that India is winning back some voice based BPO services with the increasing challenges for the Philippines. With the changing needs of the customers, India has been able to showcase expertise with not just voice services but has also excelled in multi channel customer service offerings. The business partners no longer just want the customer interactions to be handled at a cheaper cost but are looking for a lot more from the organizations. The clients want to walk hand in hand in order to achieve business goals. While the Philippines majorly offer voice services, there are many areas that work in India's favor India as a country is a great partner to work with Greater intellectual pool in India compared to the Philippines It is more cost effective overall to outsource to India There is a decreasing attrition trend over the last couple of years in India "We have a large e-commerce company that asked us to move some jobs to India because there are better skills here to both sell and upsell services. We moved 600 jobs to India from the Philippines for this client," Sandip Sen, CEO of Essar Group's BPO arm Aegis, told ET.
3 OUTSOURCE TO INDIA 02 History of Outsourcing - India Vs The Philippines 2015 Stats Philippines will grow to $21.1 bn compared to last year $18.4 bn India will grow to $26 bn compared to last year $20 bn
4 03 A Quick Comparison - India Vs Philippines When it comes to business process outsourcing services, both India and the Philippines are quite well known for being the top choices for large multinational organizations. The argument on which one of the two is better has been going on for quite some time now and both India & the Philippines have their own unique selling points when it comes to delivering the value in outsourcing. While the competition gets stronger each year, each of these countries continues to capitalize on something that the other cannot offer. For e.g. clients of the Philippines based firms have been relatively more comfortable with accent, communication & soft skill aspects of the transactions, while the firms outsourcing to India enjoy more analytical & technical expertise as needed for their business. India has been an older player in the IT & ITES sector and has a considerably larger share of the pie as compared to the Philippines [India has about $118 Billion in contrast to the Philippines stands around $15 Billion, approximately 12.7% of India's share]. While some Investors and outsource shoppers have been looking at the Philippines mainly because of their accent & soft skill capabilities, India still remains quite attractive, with great price levels and a greater overall maturity of the industry i.e. ITES ecosystem, easy availability of resources and skills for all kind of IT & Transactional BPO outsourcing. Taking a deeper look at the current cost structures of service providers of both countries (factoring in all operating costs with special consideration to the cost structure of Tier 1 cities where most of the industry is clustered in), India actually has a marginal advantage as the overall cost of operations in the Philippines is slightly higher than in India. The overall quality of infrastructure between the Philippines and India are also largely comparable, but one of the key differentiating aspect for India is the spread of about 50 key delivery locations where IT & BPO delivery work is carried out, whereas the Philippines has only one or two main destinations (Manila and Cebu). As such India is able to boast superior scale and overall ecosystem for a robust inter-city BCP operating environment, although the Philippines continues to aggressively work to improve its infrastructure/eco-system as well.
5 04 A quick Comparison - Offshore versus Near shore While the advantages of global outsourcing are well known, there is a difference between outsourcing to an offshore distant country than to a near shore closer country. The main reasons for choosing one over the other are usually not based on distance but mostly cultural. To some organizations, offshore outsourcing may appear more risky and complex. On the other hand, near shoring is considered to be relatively easy (considering the similar geographical, political, historical and cultural backgrounds as the outsourcing company). There are also a few auxiliary benefits of near shoring such as being on similar time zone, allowing business transactions to be executed during the same time as the customers. Also, site visits or related travel can also happen faster and more frequently. However, near shoring when compared to offshore options is definitely a dent in the budgets. While this is still cheaper than getting the work done onshore, near shore entities are going to be pricier than the offshore counterparts for the very same reasons they stand out i.e. their geo-political position. Plus, it's not always true that the economical/political conditions of the neighboring countries are always going to be profitable for the outsourcing venture. For instance, an American company outsourcing projects to Canada would end up paying almost the same as they would onshore thereby this venture doesn't translate into monetary savings, instead add expenses for travel, legal affairs, etc. but the only gain is to open up trade between two countries. Overall capacity is also a challenge for many currently popular near shore venues. By and large, these are smaller countries in central and south America and they only have a finite quantity of skilled or trainable resources. Many hit a wall in terms of available resources fairly quickly and those who try near shore after this wall face declining productivity. Eventually when everything comes down to cost, given all of these factors, near shore can never compete with the hourly rates o f offshore companies. Also, given the fact that offshore companies consistently work to reduce their limitations (contributed by geography, and cultural differences) i.e. through the 24/7 support model, the linguistic capabilities, better analytical resource availability, etc. the level of service of offshore entities are almost at par to their near shore competitors. In the end, based on the cost benefit ratio of whether to go with near shore or offshore, as the solution for outsourcing, offshore does win more points, and as a result, continues to be the largest benefactor of global outsourcing seats.
6 05 What is the recommendation from one global outsourcing veteran? I've run several thousand FTE operations in North America, South America and Asia. From these experiences, the data points cited within this document and my personal experience, if I were making decision to outsource now, I would strongly consider India again for your VOICE, as well as back office, needs. Here are several reasons why India is more pro-global business now than it has EVER been -- With the current political stability under Prime Minister Narendra Modi, a lot of government aided initiatives are being carried out to attract foreign investment. As part of the Indian government's vision of creating jobs in Tier 2 and 3 towns, the government is initiating funding to the BPO industry. This has been a key agenda item of the new government. This eventually may lead to lower costs for outsourcing, even considering inflationary pressures. There have been various policies and concessions introduced by the Government of India to fast track the growth of IT enabled outsourcing market considering the growing importance of the BPO industry. Led by associations such as National Association of Software and Service Companies (NASSCOM), there is a huge drive for India to become the global hub for IT-enabled outsourcing in the future. From 1990s, India has evolved into providing more specialized services compared to providing low-end technology services.
7 06 2. India has great intellectual talent and can offer a higher ROI though bundled analytics (Because India has the skills) Gone are the days when clients were just looking for an organization to listen to customer interactions, there are a lot of unsaid needs that the clients are looking to be fulfilled. With the intellectual ability, India has been able to offer analytical expertise leading to high return on investment. With the demanding nature of the industry and the customers, there is a constant need to offer more and new approaches that live upto the expectations and meets the needs of the end user. It should be noted that to keep up with the raising of the bar of clients requesting more advanced analytical data along with the performance itself, the Philippines actually has over 100K supervisory, managerial and analytical support resources on the ground there FROM India. Going to the source country instead, PROVIDED you select partner(s) who have the DNA to deliver both above goal services AND the value-add business insights, has an absolute and significant ROI.
8 07 3. When adding up ALL costs (labor and infrastructure), more cost-effective To facilitate globalization, the governments of both countries are open to foreign investment and facilitate globalization. However, the Philippines is relatively new in the outsourcing business. With better infrastructure and Technology, India offers cheaper rates. The population and the average age serve as a huge advantage for India enabling it to have a stronger future in the BPO Industry. Based on workforce availability, India has a great advantage. They are the seventh largest country in the world with over 1 billion population according to 2011 census, whereas, the Philippines's population is just 94 million according to a 2010 estimate. In India over 50 percent people fall in the below 25 years category which works as well in terms the younger generation being more aligned to the business needs. There is a pool of thousands of graduates and post graduates created per India's education system which is much needed for the BPO industry. With respect to Technology, the data entry jobs are still there in India, but the complexities of the outsourcing projects India is undertaking is increasing day by day. The Indian technological institutes are world class and help in good talent with technical expertise. The Philippines too is catching up in this field but it still needs to grow a lot to match the IT infrastructure of India. The ISP, networking and telecom brilliance make India a strong player in outsourcing business.
9 08 4. Decreasing attrition trends in India translate into even greater value Considering the attrition rates with onshore, the offshore attrition levels have never been that high but have been steadily increasing. Sometimes it is not unusual to see an annual attrition rate of 60% for some specialized offshore voice processes but in the end they have a large impact on the overall cost. Recent studies show that smart Indian BPO's are utilizing a variety of methods starting with the selection process at the hiring level (much more sophisticated assessment of voice and listening skills as well as fit of applicants within the organization) and continues till induction training, nesting as well as production. Comparing the performances of the India and the Philippines resources, the top voice agents in India have always performed as well or better than the top agents from the Philippines. The challenge was always that after the top tier, India voice agent quality was not as consistent and therefore, overall voice performance was lower. The investment that smart outsourcers leverage to find the best voice agents ensures more emphasis in building a work culture where those same agents will stick relatively longer with the organization. India's smart outsourcers have discovered that through more elaborate selection process, niche talent can be identified, nurtured and retained. Conclusion: In summary, even companies who tried India for voice before and then decided to move it elsewhere, would be well served to take another look at India for selective voice outsourcing needs. It requires finding outsource partners who have the experience and innovation to leverage smart hiring to build and retain teams that can meet voice quality needs, as well as a deep focus on analytics so that the overall value delivery will encompass the whole package. For companies who do this, their return on investment will be significant.
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