Call it a multi-billion dollar opportunity. Call it the second wave. Call it changing global business dynamics.

Or else, call it a hype. Call it shortsightedness. Or simply call it chaos.

No matter where your opinion lies between these two extremes, you have enough company. But one thing is for sure. You cannot ignore the phenomenon of contact center services, known to us in its various forms—telemarketing to technical support to receivables management to customer service.

When we started exploring the state of this industry, we had a very simple question in mind: the same that we have put for you above. Is this industry experiencing a boom or going sick?

Vivek Nagarkatti president, Global e-Business Operations an HP company “Cost factors of course forced us to come to Asia. But after that, it was on multiple qualitative parameters that we ranked each of the potential destinations. India emerged a clear No 1”

After talking to almost all the companies who matter in this business, we still do not have a clear answer. Not that we did not get the information. Most of the companies have shared information generously, something that is not a very common experience for us normally.

Yet, the reason why we cannot answer that simple question is that a large part of the industry is divided almost equally between players who are running against time to handle the fast growing business and companies who have huge facilities with almost nil business. Then, there are the odd middle-of-the-road companies which are just managing to survive. So what do you call the state of the industry?

Evolving...is how the experienced hands describe it. To what, is the next logical question. The story seeks an answer to that question...what next?

Paradigm Shift
Since last year, when we did a "reality check", this industry has evolved at a rate that is arguably the fastest measured against any industry segment at any point of time in the history of Indian business.

Raman Roy president and CEO, Spectramind “We talk of millions working in this industry by 2008 or 2010. Where are these people now? In schools. Is there something in our school curriculum that will prepare them for working in this area? What are we doing as a country to develop this workforce of tomorrow?”

The biggest fundamental change has been the fast evolution of call centers and interaction-based BPO services from an opportunity to a full-fledged industry that today employs more than 17,000 people, has a total business of more than Rs 1,500 crore (the customer interaction business only) and which is fast growing out of the shadows of the IT industry. "We suffer from an overdoes of IT. So most of us compare this to the IT industry. Both in terms of size and people employed, this industry has the potential to become much much larger," says the CEO of one of India’s top companies in call center/BPO space. Most of the others agree with this view.

While this is the Big Change, in terms of how people—within this industry and outside—have started looking at the business, what has helped give them this confidence are a number of specific changes that have taken place?

Some of them are as follows.

Phaneesh Murthy, head (worldwide sales and marketing)Infosys “We have to change the perception that India is good only for the low end. Once we are able to do that, the business dynamics will change drastically.”

India is now clearly there in the service outsourcing strategy of most of the US companies. More companies are taking a proactive approach in deciding to outsource to India now like sending fact-finding teams here. These teams—sometimes comprising as many as 10-12 senior executives—come prepared with a lot of information about India, Indian companies and the pluses and minuses of outsourcing to India. Apart from hundreds of full-time sales executives of Indian call center companies who feed them with information about the country, about their own companies and their competitors, sometimes they do their own bit to find out about the reality in India from different sources. Voice&Data, whose website has been a source of information for these executives, often receives e-mails enquiring about Indian companies. The questions have also changed from what they used to be a couple of years ago—revolving around technology, infrastructure, connectivity, and personnel laws—to more pointed ones on companies, their clients, the services that they currently provide, and about the management team. In short, this is good news for serious players. It means one cannot bluff one’s way to client acquisition. A couple of smart sales guys in the US cannot compensate for the lack of a proper delivery model. This is the most important change.

Sonali Verma, COO, ienergizer “Yesterday, we used to go to them. Today, they are at our doorsteps. Yesterday, we used to tell them why we could do it. Today, we have to show them how we are doing it.”

The perceived India/Indian companies difference in the minds of potential outsourcers, which we wrote about last year, has also been minimized to a great extent, though not yet vanished fully. Potential outsourcers now feel more comfortable handing over their work to an Indian company.

The UK market, traditionally shy of outsourcing, has woken up to the virtues of outsourcing to India. That is an entirely new market to tap for Indian companies.

K Vijay Rao CEO, Epicentre “Background of promoters is neither a strength nor a weakness for a company. The performance of a company in the long run depends on the capability of its management to deliver. Everything else is derived out of that.”

Overseas outsourcing companies, who were testing the Indian waters last year, have now firmly put India on their business map. An experimentation that started with Convergys outsourcing a few seats to 24/7 Customer a couple of years ago, has culminated into a whole category (See our list), with names like Convergys, Sitel, West, Stream, and more recently Teleperfomance USA and 7C opening their India facilities.

IT companies have entered the business. Not only has this given more respectability to the industry, they have also managed to convince their IT customers that they can deliver BPO as well. Although it is early to forecast anything concrete, these process masters could change how this business is done worldwide for ever.

Prakash Gurbaxani, CEO, Transworks “This business is not about one strength. You may start with one strength. But that advantage cannot be sustained if you fail to put together the other pieces quickly and effectively.”

Telecom liberalization is making connectivity a non-issue. It has helped in saving top management time and also making the country more saleable to the clients abroad.

All this means a big change in the way this industry operates.

What Next?
Call it Phase II in the industry evolution.

We have entered a stage when technology is given, connectivity—an issue that not long ago seemed like a permanent negative for Indian industry—is all set to become a non-issue in a matter of few months, thanks to telecom reforms. And as outlined earlier, a major positive shift has happened in the minds of potential clients about India as the right destination to outsource their services to.

Shiv Karan Singh, CEO, India Contact Center Advisory “IT companies have a lot of strengths to enter the BPO business. But they should understand the critical differences, all of which emanate from the fact that IT is project to project whereas in BPO you deliver every hour, every minute, every second.”

In other words, almost all the generic disadvantages associated with delivering the service out of India are getting negated. What does that mean for the chief executive of an Indian contact centre service provider?

"Simple, it is time for him to do what a CEO is supposed to do," says an international consultant, "he should focus on the right business issues." And those are not very different from the business issues in any other service industry—client acquisition, quality service delivery, and differentiation.

What is the Indian Remote Services, Inc, doing?

Client acquisition
So far, Indian companies have tried all possible methods of client acquisition. Those include direct sales, through agents, through a US service provider, and even through the technology vendor.

Prashant Sankaran, program director (technical support center), Digital Globalsoft “Software companies that are entering this business will have to leverage their present strengths. The strategy should centre around one’s specialization areas as a software company.”

Most of the professionally set up companies have taken the long-term approach of marketing directly to the clients in the US. This is primarily because of the fact that they do understand the client acquisition process in the US, because many of the promoters/key executives in these companies having worked in the US industry. This helps them in two ways. One, they are well networked in the US. Two, they do understand the value of spending a marketing dollar. Many of the smaller Indian companies and big corporate backed ventures, on the other hand, are not too comfortable spending a crore or two in six months for an intangible thing like sales and marketing. Asks a vice-president of an Indian corporate backed call center company, "By spending Rs 2 crore here, I can build a world-class facility. But by spending that amount on the salary of a couple of sales guys there, what do I get, if they leave without getting any business? That money is blown away for ever without any returns."

He is at least forthright. Attracting and retaining talent in the US is not a particularly easy task, for companies who have never done it before. For most of the corporate houses, especially those who have not hired professional top managers, it has been a chicken-and-egg question—whether to build the facilities first or market first? They have ended up doing what they are comparatively more comfortable with—building facilities. In a few cases, vendors and consultants have promised them the business and managed to get some work (about 20-40 seats) in many cases, which these companies have not even managed to sustain let alone grow the account. Admits a top executive of another such company, "Most of us have burnt our fingers taking that route." The result: the now famous over capacity. You will not believe if we tell the number of such executives who discuss this problem with us, all off the record of course.

Ashwani Srivastava President, Global e-CMS “Over a period of time, if we have to compete in the world, we have to work on an integrated delivery model with multiple centers across multiple geographies. We cannot remain India-centric. After all, India is not the best place for all types of services. How do you serve a Spanish speaking customer base of a client from India, for example?”

Today, they are thinking of alternative routes. While many of their competitors feel it is a case of "too little, too late", the companies are hopeful. One route that companies are taking is getting into a joint venture with the US service providers. In the next six months, Voice&Data believes that at least half a dozen such JVs will come up. That could well be an intermediate step in the consolidation process of the industry. But more about that latter.

Will this lead to success?
Well, we do not want to pass any value judgement. But one thing is for sure. If companies have actually learnt from their mistakes and want to do a sincere job this time around, this may work out. But if this is another short-term plan, it is bound to fail.

PV Kannan Founder & CEO, 24/7 Customer.com “There is no one right path for everyone. You have to choose your own growth path. No matter how you decide to grow, you must be able to deliver.”

However, there is one good news for companies that are sincere, have done this job but do not have much marketing muscles in the US. These are typically small, specialized companies or good domestic service providers who want to make it to the international market. Things have become much easier for them with lots of fact-finding teams visiting India. While this may give them the much needed first few customers, in the long run, this will be no alternative to direct business development models.

Talking of direct business development, It is not that people have not tried more innovative approaches. The most common among such approaches has been acquiring companies abroad. At least a few Indian companies have done that. Hero Group that acquired a major stake in First Ring, a US company with a delivery facility in Bangalore; Essar Group that acquired a company called eTelequest in the US; and E Serve Technologies (the BPO venture of HCL Technologies) that bought Apollo

Challenges for the Industry Short Term Quality manpower Access to capital Efficient utilization of capacity (Different time zones like UK could utilize capacity better Long Term Ability to keep acquiring new customers Ability to get more business from existing customers—turn a few accounts into strategic accounts Not losing focus despite needs to do non-specialized jobs for a few client Ability to scale up without compromising on quality Move up the value chain with value-added services

Call Center in Belfast, Northern Ireland from BT, are the most notable ones. But apart from HCL, the other two have not really been great success stories. There are strong rumors that Global eCMS, the call centre arm of Global Telesystems, is also looking at this option, though the company is tight-lipped. E Serve, it is rumored, is also scouting for another acquisition target, this time in North America.

"Acquiring a company for the sake of client acquisition only is a costlier approach," says the CEO of a VC-funded company which has a marketing office in the US. "Then what is the guarantee that customers will move to India with you?" he asks. While the opinion is divided, Voice&Data expects companies will keep trying this route for various reasons, client acquisition being on top of the list.

Another ‘white space’ opportunity for Indian companies could be the UK market, which is fast waking up to the virtue of offshore outsourcing. The number of delegations coming from UK has increased manifold in the recent months. One can expect some major announcements from the other side of the Atlantic this season.

Arun Santhebennur CFO, iSeva “Domain specialization is not enough. Within each domain, you need to specialize in services that you want to deliver.”

IT companies, of course, will come with their own clients whom they have served for years. For them, this might be the easiest part of the whole piece.

Partnerships with US-based outsourcing companies is one option that few good companies have tried, the notable exceptions being 24/7 Customer, Motif, and Tracmail. While one can debate on the nature of partnerships, we believe that this is good for the industry, provided there is a sincere long-term view from both sides. Irrespective of what some of the CEOs say now, this is likely to continue in some form or the other for some time.

Service delivery
In the long run, there is no alternative to building a service delivery capability.

Saurav Adhikari President, HCL Infinet “In other services, it is the cost factor. In tech support, people think India can deliver better. There is a big difference there.”

And building a robust service delivery model is not just about building a good technology infrastructure and hiring good people. It encompasses, apart from the basic infrastructure, strong processes, inherent quality at every stage of the delivery chain, ability to learn all through, and most importantly, building a model that is comfortable with growth.

It seems that most of the better performing companies in India have realized this fact. Most CEOs unequivocally listed it as the only long-term differentiator. Look at the way they are falling one over the other to go for quality practices and certification. The lone industry certification, COPC, has been more popular in India than anywhere else. Usually, one expects quality certification to come much later in the business cycle of any company. But in the two-year old industry, there is already one company (24/7 Customer) that is certified with COPC 2000, version 3.1, at least half a dozen other companies have either applied or plan to apply. The list includes all the better known companies—Spectramind, Daksh, CustomerAsset, Vcustomer, Transworks, Epicentre, and Talisma. Many others like Global and ienergizer do recognize it as the right step, even though they themselves have not gone for it, yet.

Krishan Dhawan chief marketing officer, Exlservice “It is difficult to do BPO in a domain without having people from that domain. BPO, after all, is all about processes and pare domain specific.”

While rivals pooh pooh this craze for COPC as contributing towards the marketing presentation, Cliff Moore, chairman, COPC, feels that many Indian companies are serious, and rightly so. Companies that have gone for the certification cite three reasons for it. One, of course, is the marketing part. It shows that you are serious about your business and want to do it well. Two, this allows a company to leapfrog in time. In an industry where man-hours experience is a major parameter for evaluating a company, going through COPC certification allows a company to learn in minimum time. But most importantly, as many CEOs point out, this certification makes their processes stronger and allows them to make the scaling-up process smoother, faster, and hassle-free.

What strengthens the belief that these companies are serious about quality and processes is the fact that they have plans to go for other quality measures as well. At least four-five companies plan to go for Six Sigma. Spectramind, the biggest company in this business, is already doing Six Sigma. It is also implementing what it calls Pragati, an Indianized version of Kaizen, the Japanese quality standard.

Ranganath Iyengar, practice director and co-founder, ThinkHarbour “Certification is a good first step. But to differentiate, you need to take the next step. I believe that is benchmarking against the best in the world.”

While certification and process improvement will also help companies in managing growth better, that is not enough for achieving this important objective. Being comfortable with growth means you are open and flexible and know how to manage uncertainties. Once a company goes beyond 1,000 seats, it should be able to manage uneven traffic during different times of the year, month, and even day. Also, a company should not be dogmatic about what it does without losing focus. It means, for example, doing a supposedly low-end work of 30 seats if a big client asks for it and at the same time not take those jobs in isolation.

And in the very long run, good human resource practices is extremely important for a company to take the right people, train them as and when needed, and capture the collective knowledge and use that to make the processes more robust and move up the value chain.

Differentiation
While India is now in the limelight for its cost advantage, and all companies do acknowledge that cost arbitration is the model today, most have started thinking along the lines of building one or the other kind of differentiation.

One thing that has become a point of debate is that should India as a country build some differentiation? The supporters of this approach say that this is the most effective way of tackling emerging competition from countries like China, the Philippines and others. But this requires a unified approach with some association taking up the cause or the government promoting it abroad as say, the accounting hub of the world, or the tech support center of the world, no one is doing anything about it seriously. At the moment, it seems like more of wishful thinking.

Subhendu Mitra founder and head (Asia-Pacific), iBackOffice “You will see partnerships between IT companies who have experience of international client relationships and processes and specialized contact center companies who have experience and focus in this business. I think that is win-win combination for both.”

Not that companies have built many differentiated services for themselves. Yet, most companies are sensitized to the need for differentiation. It may sound a bit harsh, but the effort today is more on talking about their differentiation than having that differentiation. For example, much is being made of the so called domain expertise. Companies do claim that they have expertise in insurance or telecom or travel. The fact remains, it is by default that they have got those accounts and are now trying to sell that as their domain expertise. Some companies, for good reasons, have identified verticals that they want to target. While that is essential for focus, which is the first step in a long journey towards differentiation, that is not differentiation by itself.

But is vertical domain expertise a must? Most of the industry seems to agree on that. However, there are some isolated dissenting voices as well. "In call center, you need to have service expertise and not domain expertise," says the CEO of a Mumbai-based company. "In BPO, you need to have domain expertise, but in call centers, it probably makes more sense to build an expertise in customer service or telesales or collection or tech support, irrespective of what industry you serve," he says. A top executive of another company goes a step further, "It is not an either-or situation. You need to have domain expertise and within that you need to specialize on services."

But is that not limiting oneself too much?

Probably.

While the service differentiation will happen to some extent (like for Daksh, it is 90 percent customer service, or for HCL Frontline, it is 100 percent tech support), what these companies can do is to use what can be called their "late mover advantage." COPC itself is an example of that. Not all the big call centers in the US can go for COPC so easily as Indian companies are going.

Ashish Gupta, country head and COO, Evalueserve.com “Both consolidation and movement up and down the value chain will happen before this industry stabilizes.”

One common example of using technology to build a differentiation is doing customer response analysis. In fact, many companies like Spectramind, Daksh, 24/7 and Epicentre are doing that. But most agree that while it can be offered as a value-added services today, one really can neither charge a premium for that nor can bag orders based on that strength alone.

A few others like E Serve and Global are trying out integrated global delivery models. Their logic is simple. India is not the best place for everything. So offering different services across multiple geography-based delivery facilities is a differentiation that can win customer confidence. Apart from multiple language, multiple skills, redundancy is also built into this model.

IT companies, of course, have their own differentiation—of offering end-to-end technology services to process outsourcing.

Consolidation? Yes, no, maybe...
This is a cliché question—will there be consolidation. The theoretical answer to that is—yes, there will be. Beyond that, no one is willing to say anything. When? How? These questions have few answer.

Rothin Bhattacharya executive director, KPMG “I don’t think in this facilities-centric business, two Indian companies merging with each other will create much value.”

Many feel the gap between good businesses and bad businesses is so vast that mergers and acquisitions do not make much sense. In the typical consultant lingo, little value has been created in any manner by companies that are performing poorly. So they are not really good takeover targets. "If any company wants some building with structured cabling or a leased line, probably it makes sense to acquire," goes one extreme reaction. Though you can debate on the degree of harshness of this comment, it is quite close to reality.

However, those who forecast a large shakeout, do acknowledge that there is remote possibility of consolidation among existing Indian contact center companies. In a facilities-centric business, with 300 seats in Guragon and another 400 in Mumbai with different technologies and practices, one hardly gets anything. Many feel the US companies (either clients or partners like outsourcing service providers) or the big Indian corporate houses would take over some of the middle-of-the road companies—companies that are doing well, but have problem in scaling up. There could be a few small companies that may get either significant strategic stake or get acquired. And in all probability, this trend will start this year . There is already talks that a US based outsourcing company may buy out an Indian company to which it has subcontracted work. ICICI’s buyout of CustomerAsset will trigger off a new round of possibilities. But it is expected that most will prefer starting with a strategic stake first rather than a complete buyout.

Sanjeev Aggarwal founder and CEO, Daksh  “I am sorry to say this. A large chunk of companies will close down. And that is not good for the industry.”

Indian IT services companies may be active players as well. "Call it consolidation or anything; technology companies both in India and the US will increasingly take an interest in these companies," says the CEO of such a company. "Because, it does supplement their business nicely," he reasons. Despite just one example of Wipro’s 20 percent stake in Spectramind, and all other IT companies taking the independent route (Infosys categorically told Voice&Data that it is not considering acquisition option), the talks of IT companies buying out contact center companies just refuse to die in the grapevine circles.

And finally, some feel those companies that fail to deliver will simply die down. They feel consolidation is not necessarily imminent. The logic: It does not create much value in a service industry. "Has it happened in the IT services industry?" is the question posed by supporters of this view.

Well, while this and many other questions will be answered this year or the next year, one thing is for sure. The industry will grow, probably the government will do its bit (see extracts from CII-KPMG report on page), and the twenty year old, after being out of the college, will continue to discover that the world of employment is not so bad, as his elders had told him for years.

Shyamanuja Das