Growing pains dim India's
outsourcing edge
BANGALORE -- Indian outsourcing companies are shifting some of
their operations to China, the Philippines, Vietnam and Kenya in
a bid to stay competitive as higher wages, expensive property
prices and a rising rupee eat into profits.
Back-office services companies thrive on doing jobs such as
taking customer calls, payroll management and accounting at a
fraction of the cost for big multinational firms or governments.
But costs in India are climbing on the back of a robust economy
that has lured skilled workers to other sectors, forcing
companies to look elsewhere to stay in business.
"If I was only in India, probably I would have been worried to
death," said Partha Sarkar, chief executive of HTMT Global
Solutions Ltd.
The Bangalore-based back-office services provider used to
generate all its revenue from India by providing services to its
clients in the United States. But India now accounts for little
over half the total, and rapid expansion in the Philippines and
Mauritius has helped it offset the impact of a stronger rupee.
It plans to enter China and Vietnam soon.
The company sees its 2008 revenue jumping to $150 million from
$97 million in the last fiscal year.
"Three years back, I was completely exposed to rupee-dollar,"
Sarkar said. "Now it doesn't worry me. I have diversified my
currency and country risk."
In July, Infosys Technologies, India's second-largest software
services exporter, said it would buy three of Royal Philips
Electronics' back-office services units in Thailand, Poland and
India to expand market presence.
The back-office services unit of the third-largest software
exporter Wipro Ltd. plans to set up two facilities in China to
tap growing business opportunities there, its chief executive
T.K. Kurien said.
India's English-speaking workforce, a big factor in winning
call-center jobs, faces competition from countries like Kenya.
"When compared to India, we are better off in terms of salary
and cost per seat, and we have a large pool of Kenyans with
clear accents," said Bitange Ndemo, permanent secretary in
Kenya's Information Ministry.
India's share in the global back-office services pie will drop
to 50 percent in the next 3-5 years from about 60 percent now,
according to US-based Tholons Inc., which offers management
consultancy for offshoring.
SKILLS SHORTAGE
India produces about 2.5 million graduates every year, versus
400,000 in the Philippines, but only about 15 percent are
suitable for employment in the outsourcing sector.
US-based outsourcer 24/7 Customer, which has multiple facilities
in Asia's third-largest economy, interviews 5,000 candidates a
month in India, but is able to recruit only about 250, Chief
Marketing Officer V. Bharathwaj said.
This is pushing up wages rapidly as financial firms from
Citigroup and HSBC to Standard Chartered Bank employ thousands
at their back-office hubs in India.
Starting wages at 15,000 rupees ($366) a month are still about
one-fifth of what their US counterparts earn, but they are
rising 10-15 percent a year.
Cost per employee for a back-office firm in Bangalore is almost
similar to Manila, but is 20 percent lower in Guangzhou in China
and 35 percent cheaper in Ho Chi Minh in Vietnam, said Avinash
Vashistha, chief executive of Tholons.
Analysts say that while Vietnam does not have a vast pool of
English-speaking manpower, it is a prime destination for
non-voice back-office services such as legal and medical
transcription, claims processing, and finance and accounting.
Adding to the squeeze is the rupee, Asia's best performing
currency this year, which climbed to a nine-year high of 40.20
against the dollar, up 10 percent since end-2006, while the
Philippine peso has gained more than 5.0 percent.
First Global Securities last month downgraded India's IT
services sector to "underperform," citing the rupee and wage
inflation. Every 1.0 percent rise in the rupee impacts the
services firms' margins by 30-50 basis points, analysts say.
"Everything is hitting us adversely," said Kiran Karnik,
president of the National Association of Software and Service
Companies. "Wages are going up, real estate costs are escalating
and on top of that you have the dollar exchange rate going bad."
India's back-office services industry, which earned $8.4 billion
in exports in the year to March, is also being lured by tax
breaks, infrastructure improvements and investment perks offered
by China and the Philippines, he said.
The industry is also anxiously watching for any ripple effect
from the US sub-prime mortgage crisis, with some smaller firms
feeling the pinch as US companies trim spending on services.
The industry is also anxiously watching for any ripple effect
from the US sub-prime mortgage crisis, with some smaller firms
feeling the pinch as US companies trim spending on services.
However, Infosys' outsourcing unit sees an opportunity here,
reckoning that the need to cut costs would be even more
prevalent in an economic downturn, potentially boosting
business. -- (Additional reporting by Helen Nyambura-Mwaura in
Nairobi and Rosemarie Francisco in Manila)
-- By Sumeet Chatterjee
Reuters
Last updated 02:26pm (Mla time) 09/18/2007
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