Indian BPOs fading voice

India's unrestrained growth in business process outsourcing (BPO) services appears to have taken an unexpected stumble. A decade after dominating the market and racking up $12.4 billion in revenues, directly employing three million people and cornering nearly half the share of the offshored global market three years ago, a large chunk of the Indian BPO industry focused on voice tasks appears to be having second thoughts.

Prompted by rising wage costs, attrition and an inc r e a s i n g ly painful shortage of Englishproficient talent, several BPO firms are heading to the relative safety of the Philippines. Up to a dozen operators are rapidly setting up and expanding call centres in this South-east Asian nation of a 100 million people, and many more are expected to follow as clients are increasingly insisting on delivery of services from Manila.

The Philippines churns out 350,000 graduates annually, most of them proficient in English, thanks to English medium education in its schools. Also, Filipinos speak with a more familiar accent and are culturally closer to key markets in North America (especially the United States). BPO firms in the Philippines enjoy extended tax holidays and spend far less than in India particularly on office rents and transport for workers. As a result, in barely five years the BPO industry in the Philippines has grown to nearly $7 billion in size and employs some 450,000 people, a majority of them in the voice sector.

Tilting the scales ADVANTAGE PHILIPPINES Large English-speaking population, culturally closer to the US Well-oiled public transport Extended tax sops to BPOs (DIS)ADVANTAGE INDIA Too few English-proficient graduates being churned out Growing attrition a turn-off for several companies High infrastructure costs, overheads

Some analysts dismiss any overt threat to the Indian BPO sector from the Philippines. "India continues to enjoy the largest share of the BPO market (over 50 per cent globally) and has graduated beyond voice to higher-value services," says Arup Roy of tech researcher Gartner. Even so, about 43 per cent of India's BPO revenues today come from voicebased services and, of that, almost all from English-speaking customer services contracts. Over time, the industry has matured, evolving from just voice calls to supporting other forms of services (web, e-mail and instant message) to entering the non-voice, data-based services market. More recently, many companies have moved to the next level, with their customers trusting them to analyse sales and customer data.

But in the background industry executives have struggled with tougher operating challenges. Of the three million graduates churned out by Indian colleges every year, only a small fraction is employable. As a result, BPO companies spend at least four weeks training each of their agents or associates to take or make calls "live" on the floor. Once the agents gain some experience, retaining them can be a tough task, with attrition rates topping 50 per cent in some voice BPO firms.

Worried by these rapidly worsening numbers, companies that outsource work and the service providers themselves have rapidly looked for alternatives, especially to the proverbial low-hanging fruit, the voice BPO market. Indian BPO veterans such as Raman Roy, who founded the BPO firm Quatrro after selling off Spectramind, among India's earliest crop of call centres, to Wipro, argue that the industry here is handing its business on a platter to Manila and allowing it to scale. "The largest company in the Philippines is perhaps as big as one facility of an Indian BPO. By letting large-scale voice work migrate to Manila, we're allowing the Philippines to add heft to their industry," he says.

Aggressive incentives to BPO companies and some inherent advantages of location also help. "The IT/BPO hub in Manila is situated bang in the middle of some of the largest shopping malls," says Keshav Murugesh, CEO of WNS, which started with a 200-seat facility in the Philippines in 2008. "The government has invested in transportation infrastructure for shopping malls, thus it is easy for employees to travel to and from work." The Philippines also has better tax sops and cheaper infrastructure costs (telecom bandwidth is at least 25 per cent cheaper, for instance), which make it more lucrative to set up a unit there.

Two years ago, after Intelenet Global Services started losing clients because it didn't have a centre in the Philippines, it started with a small, 100-person team there. It has grown to a 1,000-person unit, and the company plans to scale up to 5,000 people in four years. "Filipinos don't need to attend intensive accent neutralisation classes lasting four weeks or be herded through culture courses either," says Sandeep Aggarwal, Intelenet's Executive Vice President for Sales, Solution and Transition.

The cultural similarities between the United States and the Philippines make for another snug fit. It is easier to explain to an American that a hurricane has shuttered a facility than, say, Shiv Sena riots bringing Mumbai to a halt, says Aggarwal. Clients from sectors such as consumer electronics and others are demanding that voice support be delivered from the Philippines and not India.

WNS and Intelenet aren't the only ones expanding rapidly in the Philippines. Rohit Kapoor, Chief Executive of EXL Service, made multiple visits to Manila to hunt for an acquisition to enter the market. He wasn't successful. Instead, Kapoor opted to set up a new centre around 18 months ago, which has today grown to 800 people, handling calls from eight companies.

"Customer empathy is much better in Manila... we have people empathising more personally with customers who have accidents, than just relying on preset manuals to verify claims," he says. Outsourcing experts and advisors in the Philippines say that the trend is irreversible. The country may already be a leader in voice BPO, going by where new contracts are being delivered from, according to Gregory Kittelson, Managing Director, Kittelson & Carpo Consulting, an immigration and outsourcing services provider in Manila.

"If you're doing voice work out of India and haven't lost your contract you're going to do so pretty soon," he says, without a hint of humour. Kittelson & Carpo has advised at least 150 companies this year, mainly in BPO, about setting up shop in the Philippines. This attraction was too hard to resist for Shanmugam Nagarajan, Co-founder and Chief People Officer of 24/7 Customer, a Bangalorebased BPO service provider.

His company, founded in 2000, has some 3,000 people in India, while it has already hired over 4,000 in five years in the Philippines. "India has been muscled out of the voice market," Nagarajan says. "Rising attrition and consequent wage rise make it very difficult to scale in India." So, 24/7 Customer says it will continue to expand in the Philippines and is looking for a place outside Manila, even as its expansion in India slows. India's voice BPO growth is being held back at an annual 15-20 per cent when it can expand at 50 per cent, rues Roy of Quattro.

While large BPOs such as WNS and IBM Daksh may be able to adopt a hybrid delivery model across India, the Philippines and other outsourcing locations, the decline of call centre contracts from here may be a pointer to much tougher times ahead for this once unstoppable sector.