Wage inflation affecting Indian BPO industry

BANGALORE, INDIA: There is still $120-150 billion market available for by the BPO industry, noted Noshir Kaka, director and global practice leader, outsourcing and offshoring practice, McKinsey and Company during the session `CEO insights on Managing profitable growth with rising costs’ at the Nasscom ITeS BPO summit in Bangalore.

India drives about 47 per cent of the $13.4 billion global BPO market. However, India’s competitiveness is under pressure and wage inflation is affecting the Indian BPO industry, added Kaka.

Commenting on some of the challenges, Kaka said, BPO industry in India is seeing a significant wage increase. “On an average we are seeing 15 per cent CAGR in wages. At the same time, client perception is that the offshore productivity is lower than the onsite. Some of the industry processes such as six sigma assessment or practice is not being seen”, he added.

On the performance side, Kaka said that onsite or captive BPO centers are 37 per cent expensive compared to third party centers at the same time there is no improvement in the performance.

“Leaders are leveraging effective people management practices, not higher compensation to contain attrition. Units with mature productivity improvement processes have already exceeded onshore productivity levels,” further he added.

Reacting to Kaka’s observation, Kris Gopalakrishnan, CEO and MD of Infosys Technologies said, “to sustain and to grow margins, I strongly believe in going back to our fundamentals. There are three things- culture, model and discipline that need to be looked at in any implementation. You need to build the flexibility to address the challenges. In Infosys we follow PSPD model (Predictability, Sustainability, Profitability and De-risk).’’

“Discipline happens when culture happens. For instance, in Infosys any unbudgeted item needs to get budgeted only CEO has to approve it. System and processes should support this. You need to build this in your company DNA, he added while participating in the panel discussion.’’

Another panel member, Neeraj Bhargava CEO of WNS Global services said, BPO industry in India is not only creating jobs but also helping accessory industry like real-estate, logistics and food business. At the same time, he urged government to support the industry with power and transport for the people.

Vikram Talwar, vice chairman and CEO of EXL Services urged the government to relook at the taxation on the industry. Government has to extend the tax holiday to the BPO segment, which is still in the nascent stage, said Talwar.

“India remains competitive because of its resourcefulness. We have huge advantage on the population side. A small portion of that if educated will boost the industry,’’ added Talwar.

Attrition is the disease of the developing country opined Pramod Bhasin, president and CEO, Genpact. “We need proper public-private partnership model to tackle the training and educating the people,” he said.

Ananda Mukerji, MD and CEO of Firstsource Solutions Ltd was the other panel member.

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