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Since Indian giant Wipro Technologies, the global IT services business of Wipro, opened a BPO center in Cebu, Philippines, early this year, speculations were ripe that India was losing its grip on the BPO market.

Wipro plans to hire more than 900 people for its 45,000 sq ft Cebu facility, which will handle customer support processes. The company is also looking at establishing additional centers in other fast-growing cities in the Philippines. Though Wipro claims that the Cebu facility is part of its strategy to build global delivery capabilities, there is a school of thought that thinks otherwise.

The Race is on
Wipro became aggressive in the BPO market after its acquisition of Spectramind, way back in 2002, and since then the company has established several centers in India as well as at various locations across the globe. In the last nine months alone, Wipro successfully set up global delivery centers in Romania and Shanghai.

The company has also started operations from two cities in China-Chengdu and Dalian. Wipro is also looking forward to establish its base in other Chinese cities. These will be scaled up in the next few months as new deals come up. The China center caters to Wipro's business in Korea, Japan, and China. In addition, the company is also looking at new centers in South Africa, Mexico, and Brazil. The latter two would be nearshore centers catering to the US market.

Actually, Wipro is not the only company boarding the offshore destination craft, but it has made a late entry into markets like the Philippines. If we go through the list of BPO companies that have set up their offshore bases in the last eight to nine months, it gives Indian trade pundits a reason to ponder.

There are twelve class-A companies that have set up their bases in the Philippines in the last eight months. HTMT, ICICI Firstsource, 24/7, Genpact, GE Money, Sutherland, Aditya Birla Minacs (Transworks), and Infosys have their full-fledged operation centers in the country; and companies like HCL, EXL Service, WNS, and Evalueserve are working on possibilities to establish centers in the near future.

Global Aspirations
"Our business objective is to enable delivery of multilingual services to our global customer base. With a strong and robust game plan for the year, we are very clear in announcing Wipro's arrival in global service ability, and the Philippines is a major milestone in this journey," says Sanjeev Bhatia, vice president, International Operations, Wipro BPO.

The service delivery landscape for BPO is rapidly evolving to cover larger process footprints. Some of this expansion necessitates near-shore presence. This, coupled with the need to offer a global delivery platform with processing capabilities in multiple geographies as a de-risking strategy, is resulting in Indian companies setting up centers outside India.

Large companies looking to outsource prefer companies that offer a global delivery platform like IBM, Capgemini, EDS, etc. Indian BPO companies, as part of their scale model and to compete with large global players, are setting up delivery centers in China, the Philippines, Mexico, Brazil, Poland, Thailand, Vietnam, etc.

Genuinely, some of the third world countries offer the right talent for certain kinds of activities. For example, for Spanish language, Mexico is a good choice. "The Philippines has the advantage of a large pool of accountants with good American accent and with the knowledge of GAAP, which makes it a preferable destination for Infosys and that's the prime reason we are here," says Amitabh Choudhary, CEO, Infosys BPO. Wipro's center in Romania serves the European non-English speaking market.

"Some of the third world countries are also great options to look at for offering platform-based BPO services. For example, Visa/Mastercard expect Asia to be the growth leader in the credit card business, which means good opportunity for BPO companies like Adventity, which offers end-to-end credit card services," says Kumar Subramanian, CEO, Adventity India.

"Adventity already practices a global delivery model and has processing centers in Houston and Dubai to specifically address the delivery of processes that need local presence in the US and the Middle Eastern market. We are also exploring the possibility of setting up delivery centers in countries such as Poland, China, the Philippines, and South America," he adds.

Last year, Finland was one of the most attractive locations for IT firms' internationalization in the northern part of Europe. Around forty companies in different fields of the IT business chose Finland as their entry point to lucrative markets and as a stepping stone for emerging Russian market.

"The wave of Indian companies also found Finland due to the high density of multinational companies in the aviation, timber, and technology sectors. Several contracts were inked last year and the Indian presence is most likely increasing in the Finnish market in the foreseeable future," says Jari P Angesleva, investment director, Invest in Finland, a national expert service organization promoting foreign direct investment in Finland. BPO is one of the hottest topics of discussion among the Finnish-originated multinationals, and is seen as a cost saving and productivity increasing method.

High Operating Costs
The aspiration to become a global player may be one of the strong reasons to look beyond India, but there is no denying the fact that India is gradually losing the cost advantage. Let's take the example of real estate. Real estate prices in Gurgaon, a BPO hub in the Delhi-NCR region, have increased by 200-300% during the five-year period from 2002-07. Even rentals in India are on an all-time high. In the US, the average price for an office space ranges between Rs 200-250 per sq ft, whereas in India it costs between Rs 300-400 per sq ft.

According to a Dataquest-IDC survey, as the BPO industry is in a cost-saving mode, the average salary hike across the board grew just 14.8% in 2007, compared to an increase of 17.2% last year. This increased the attrition rate to 20%, compared to 18% in 2006. Nearly one-third of the employees surveyed said that salary was the most common reason for leaving a company.

"In India, wage pressure is high, and wage pressure in voice is even higher," says Choudhary. "You face several challenges simultaneously in India when you are in the BPO business," says Sanjay Kumar, CEO, vCustomer. "There is a rising salary pressure, high attrition rate, talent crunch, and sky rocketing real estate prices," he further adds. "In China, the conditions are similar to India. In some cases, the cost is 25% higher than in India, but productivity is also much higher when compared to India," says Choudhary.

Strong Rupee
"If the Indian rupee continues to rise against the dollar, the BPO industry is heading for trouble," laments Choudhary.

There was a 13% appreciation in the rupee over the last year. The rising rupee has really hit the BPO industry because for BPO companies more than 90% of the costs incurred are in rupees, and earnings are in dollars. Earlier, out of a $100 investment, $80 used to come to India and only $20 went to the Philippines, China or Vietnam, but now "we are beginning to see the ratio changing to 70:30, or even 60:40," says Kiran Karnik, president, Nasscom.

"Given the rupee appreciation against the dollar, BPO companies will welcome non-dollar revenues. It shouldn't be surprising if companies are eyeing foreign destinations, where they can compensate the loss incurred while operating from India," says Kumar Subramanian.

vCustomer recently started focusing on the domestic market and the company is hopeful that the global success story will be repeated here too, provided they stick to their mantra of customer satisfaction. "Till 2008 end, we believe, the domestic market will contribute somewhere around 30% of our total market," anticipates Sanjay Kumar. On the other hand, Choudhary still feels that the domestic market is not so promising. "Low margins are a big challenge for global players in India. How would you sustain on a below 10% margin? It's not feasible in the long run," he adds.

The first quarter of 2008 will witness more companies moving outside India to add more bucks to their pocket. Obviously, reasons might be different. For some it is a natural expansion, for others it is a matter of sustainability.

Kumar Anshuman
anshumank@cybermedia.co.in