An Evaluation of the State of the Indian BPO and Call Centres in 2009 and Some
Implications for the Scottish Economy
Professor Phil Taylor
1. Introduction
The following report is based upon research undertaken during a visit to India in
February 2009. The general purpose of the research was to update our understanding
of the state of and prospects for the offshored Indian BPO (Business Process
Outsourcing) market (including call/contact centres) in the context of the deepening
global economic recession, but also in the wake of the Mumbai terrorist attack and the
Satyam scandal. As a consequence of these factors, the Indian BPO industry might be
seen to be on a cusp facing, for the first time in almost a decade, challenges that raise
doubts over its sustainability. In the words of the Chairman of Nasscom (Ganesh
Natarajan) ‘India is at an inflection point’.
The research was composed of two elements which will be more fully outlined below.
Firstly, data was gathered at the Nasscom (National Association of Software and
Services Companies) Leadership Forum in Mumbai (11-13 February 2009) that
provided insight into the perceptions of the industry leaders and other informed
participants. Secondly, fieldwork was conducted in Bangalore which included visits to
BPO companies, extended interviews with senior management, team leaders and
workers that provided complementary intelligence.
Since India remains overwhelmingly the most important destination geography for
BPO, knowledge of recent developments in this sector is essential for understanding
emerging global trends in the outsourcing and offshoring of business services.
However, the principal objective throughout is to relate this understanding to consider
the implications for Scotland and its economy.
The focus of this report, then, is to evaluate the position that Scotland occupies in the
evolving global service delivery model in the light of the changed conditions within
Indian BPO. The central question to be answered is how can Scotland best enhance its
proposition as a location for business services and as a destination for inward
investment. What gives this line of investigation added salience has been the growing
realisation amongst policy makers, ministers, academic and others that Scotland has
the potential to promote itself as a global BPO ‘hub’1.
Contrary to the received wisdom that sees the globalisation of business services
exclusively in terms of the threat posed to the developed economies, the emphasis
should be on the fact that the relocation of BPO might provide certain opportunities
for Scotland’s economy.
Andrew Rigby of Brodies Solicitors has been an enthusiastic advocate of developing a ‘BPO’ hub
strategy, hosting a seminar in June 2008, receiving prominent press coverage (Financial Times, 3
October 2008 ‘Seeking a growing share of a fast growing global market’) and has held recent meetings
on the subject with Jim Mather, Minister for Enterprise, Energy and Tourism. The outcome is a
promised government-led open discussion on outsourcing.
1
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2. Background – From Offshoring to Global Service Delivery
2.1 Limited Impact of Offshoring on the Scottish Economy
Setting the context for the report it is necessary to reflect, however briefly, on the
significance of the overseas migration of call centres and business services as far as
Scotland’s economy is concerned. What follows summarises the conclusions drawn
from reports for Scottish Development International (SDI) which contain detailed
evidence from both India and Scotland and which evaluates the potential threats and
opportunities for Scotland (Taylor and Bain, 2003; 2006; Taylor, 2008). These are
supplemented by relevant data from in-depth audits of the contact centre in Scotland,
the latest of which was concluded in 2008 (Taylor and Anderson, 2008).
In 2002 widespread concerns emerged over the future of the contact centre in
Scotland in the face of the perceived threat from offshoring to India, to the extent that
many predicted the imminent extinction of the domestic sector. This was a matter or
profound concern since customer contact centres had become an increasingly source
of economic activity across Scotland. By 2003, it was estimated that as many as 38
per cent of all new jobs created in Britain were in contact centres, with a higher
proportion in Scotland and other ‘peripheral’ regions. By 2003, 1 in 43 of Scotland’s
working population were employed in a contact centre.
Our rigorous investigation of offshoring countered these cataclysmic projections and
demonstrated the continuing vitality of the domestic sector (Taylor and Bain, 2003).
Evidence of the intentions and practices of employers of organisations based in
Scotland (and the UK) revealed that the offshoring of voice services was far more
contradictory and complex than consultants (e.g. Mitial, 2002) and commentators
were suggesting. In short, the advantages, principally the undeniably low cost of
labour, did not necessarily outweigh the many perceived disadvantages, which
included linguistic and cultural differences, problems of control over remote locations,
rising costs in India, customer resistance and massive problems with attrition.
The conclusion was that even though the volume of overseas migration of voice
services would grow in the context both of companies’ drive to cut costs, notably in
financial services, and of the rapid expansion of the Indian industry, growth would
also continue in Scotland’s domestic call centre industry. This was a conclusion
definitively confirmed by subsequent developments. Our 2008 audit established that
contact centre employment now stands at 86,000 (Taylor and Anderson, 2008) having
grown from 56,000 for 2003. By 2008, 1 in 30 worked in the call centre sector and
almost 1 in 10 in Glasgow and in Inverclyde.
A further detailed study of the financial services sector in Scotland (Taylor and Bain,
2006) deepened our understanding of the scale and nature of offshoring, not only on
voice services but also in relation to the non-customer back-office. This was
important since one conclusion of the 2003 study was that the back-office in the
longer term might be more susceptible to overseas migration than the call centre.
Nevertheless this study clearly showed that Scotland’s financial services had been
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affected by offshoring to only a limited extent, notwithstanding the possibility of
future threats and impacts.
To sum up, at the time of the acute financial crisis of September 2008, which
precipitated the economic recession, offshoring had only impacted marginally on
Scotland’s contact centre industry. The audit concluded that ‘the majority of
organisations operating contact centres in Scotland do not engage in offshoring and a
small number of organisations report that they have withdrawn from the practice’2
(Taylor and Anderson, 2008: 77). The audit also confirmed an earlier finding that is
important given the objective of developing Scotland’s distinctive proposition as a
BPO hub. It is only the most standardised and transactional services that have been
offshored and organisations report a limitation in the types of service and the degree
of complexity subject to migration. Large numbers of organisations reported actual or
perceived linguistic and cultural difficulties in India, related to the inflexibility of
agents to go beyond script, which impacted negatively on customer satisfaction.
Thus, the large majority of organisations emphatically reported that retaining the bulk
of customer servicing at home was an operational requirement. Even the most
aggressive of offshorers state that it is far from the case that ‘everything will go’ and
all remain committed to retaining more complex voice services and core
competencies domestically despite intensified pressures to cut costs. Without going
into the detail of the argument offshoring should be seen as only one element in the
matrix of cost reduction strategies that might be pursued by organisations (see Taylor
and Anderson, 2008: 80ff). These include domestic outsourcing, the introduction of
lean and, in terms of voice specifically, moves towards automation and self-service.
Nevertheless, offshoring to low cost destinations, particularly India, will continue to
provide a pole of attraction which will exercise an influence over corporate thinking
as Scottish organisations (and UK organisations with operations in Scotland) consider
cost cutting measures. We re-iterate our conclusion, though, that back office work is
likely to be more vulnerable than voice work to further offshoring.
2.2 Global Service Delivery – Offshoring, Onshoring and Nearshoring
One of the most important conclusions to emerge from these studies was the need to
alter the prism through which offshoring was being viewed. Until recently the
relocation of business services had been conceived principally in terms of one-to-one
migratory flows between organisations in the developed countries and remote
operations in a particular developing country. Admittedly, this might mean offshoring
companies using more than one supplier, but the debate was largely framed in respect
of offshoring to specific individual geographies, notably to India. The increasing use
of the term ‘global service delivery’ in the international BPO industry, particularly by
the multinational corporations providing business services, was not mere rhetoric but
reflected a rapidly evolving material change in the geography of sourcing and service
supply chains.
2
While these companies could not be named in a report that might be made publicly available, they can
be cited in this confidential report for SDI; Esure, Kwik Fit, LloydsTSB.
3
What increasingly have emerged are multi-locational, multi-site strategies from both
demand and supply sides, which seek to capitalise on differing combinations of
available skills, and resources accessible in diverse locations and which may serve
different geographical markets or customer segments. For example, a firm seeking
lower-cost solutions may simultaneously source English-speaking voice services from
India or the Philippines, Spanish language services from Mexico or elsewhere in Latin
America, various IT, technical and multi-lingual requirements from Eastern Europe,
data processing from China and so on. Consultants’ reports articulate what global
service delivery entails. For example, Kearney (2007: 12-13) recommends that larger
companies should develop ‘cluster’ footprints where the aim is to have one primary
location supported by one or more secondary locations. The rationale is as follows.
By staggering functions in multiple locations, companies can make cost
benefit trade-offs and adjust the functional mix over time as costs and
availability of people vary…centres for low-end business transactions may be
pure cost plays, while those for higher-end activities will depend on the
quality and availability of the workforce. Similarly, certain functions will be
sensitive to service disruptions so should not be placed in high risk areas.
Language needs, time zones, cultures and regional coverage should also be
factors in the decision…These locations should realise the best economies of
scale…this model is flexible so tasks and functions can flow between centres
over time as cost and talent situations change.
The main driver of global service delivery has been wrought on the supply side by
multinational service providers such as IBM Global Services, Accenture, Convergys,
Sykes, Teleperformance and Hewitt Associates. Most are MNCs whose homebases
are in the U.S. Some are generalist providers of diverse services, from IT/software, to
data management and customer relationship management such as IBM. Others
provide specialist services. In the expanding Human Resource outsourcing market,
Hewitt Associates have leveraged their domain knowledge to telling effect and now
employ 24,000 ‘associates’ in 34 countries (http://www.hewittassociates.com). Others
specialise in the similarly expanding horizontal area of finance and administration
While Accenture is a multi-faceted consultant and business service provider its
portfolio includes a specialism in F&A processes3.
A cluster of MNCs focus specifically on customer contact services. Teleperformance
(http://www.teleperformance.com) claims ‘the largest global footprint in the industry’
with 293 centres servicing over 75 markets from 13 near-shore and offshore locations.
Another excellent example is Sykes. Its locational map indicates the reality of global
delivery; eight U.S. centres, ten in Canada (850 agents), two in Argentina (2,600+
agents), one each in El Salvador (500+ agents) and Costa Rica (3,000+ agents), one in
Brazil, two in China (1,000 seats), eight in the Philippines (9,000+ agents) and
eighteen in EMEA (4000+ agents). Specialist voice companies are simultaneously
onshore, nearshore and offshore providers, delivering services in multiple languages
appropriate to the different customer bases served. What these different types of
MNCs have in common is their transnational reach and ability to utilise common
technology platforms to ‘leverage’ global sourcing. Allowing for promotional
3
Accenture expected its Indian workforce to reach 35,000 by 2007, surpassing the size of its U.S. staff
(InformationWeek, 5 November 2007).
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hyperbole, EDS (now acquired by Hewlett Packard) provides a good example of the
technological infrastructure underpinning global operations. It boasts that
seamless transition happens over EDS’ Global Services Network (GSN), part of
EDS' next generation Global Delivery System. The GSN connects EDS' Service
Management Centers (SMCs) and data centers around the world in order to
deliver uninterrupted service to clients and, ultimately, enable virtualization of
data. The GSN creates a mesh of data centers making it possible to move a
single application that EDS delivers for a client anywhere in the world while
sitting at a computer screen. (http://www.eds.com/news/features/3931/)
MNCs’ ability to ‘source’ from different geographies is enhanced by acquisition. For
example, IBM and EDS acquired leading Indian BPO companies Daksh (2003) and
Mphasis (2007) respectively, enabling them to expand capacity at a stroke by buying
local expertise.
In addition to the global MNCs, we note the role of global captives such as the Hong
Kong and Shanghai Bank (HSBC), an excellent example of a company operating in
one vertical and delivering in-house services from multiple destinations.
Headquartered in the U.K., HSBC operates at least fifteen Global Service Centres in
eight countries, with around 22,000 employees in India serving U.S. and U.K.
customers. HSBC illustrates how the tentacles of global sourcing are reaching
previously untapped destinations in the search for accessible skills at costs lower than
in ‘home’ geographies. By 2008 it employed 500 in Malta providing voice services
for UK credit card customers. This is an interesting example which indicates that cost
is not the only factor driving locational decisions. These services were relocated from
India to Malta following concerns over service quality that was being delivered from
India. Higher costs in Malta were perceived as being offset by the greater linguistic
and cultural empathy.
Many Indian BPO companies have been influenced by the need to emulate US service
providers such as IBM and Accenture and have moved beyond single-shore offerings
to become transnational in the scale of operations. The most significant case is of GE
which metamorphosed from a ‘captive’ provider into Genpact, a third-party global
BPO company delivering services across ‘an expanded universe of products and
offerings’, and operating in a growing number of locations.
We provide end-to-end customer support for processes like Finance and
Accounting or Collections. For example, we process and scan documents in
Mexico for a customer. These documents are then used by our teams in India,
China and Hungary for Finance and Accounting or Collections support. In
addition, for the same customer we provide voice support for their global
locations from all four of our region, depending on the language needs. A
caller requiring Spanish gets routed to Mexico, while the one in English gets
routed to India, Japanese to China and French to Hungary. Our customer gets
seamless service and never feels the routing of work and processes that we do.
(Pramod Bhasin, Genpact CEO in Nasscom, 2005: 16)
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Genpact has stimulated other Indian suppliers to develop global footprints (e.g.
Evalueserve in China, Infosys in the Czech Republic, Wipro in Hungary and Cebu).
Many Indian BPO companies have established facilities in the Philippines.
2.3 Implications for Scotland
What are the implications of the emergence of this global service delivery model for
Scotland? We need to consider the ways in which global service delivery is comprised
of the differing onshore, offshore and nearshore aspects
First, we note the presence of global service companies that provide business services
in Scotland. The contact centre audit found that 7 per cent of all companies operating
contact centres in Scotland had their headquarters overseas, with the most important
country being the US. Amongst these companies are IBM, Sykes and NCR that
operate multilingual contact centres for EMEA (Europe Middle East and Asia) region.
Scotland’s ability to provide multilingual capacity is an example of the sort of highervalue, higher-skill proposition that cannot be delivered from India given the
weaknesses in multi-lingual resources. A few years ago there were expectations that
multilingual provision could be delivered from easterrn European cities such as
Prague and Budapest. While that has undoubtedly occurred evidence suggests that
there have been problems in terms of scalability and the retention of the highest
quality agents. For these reasons Scotland remains an attractive location for these
activities. In addition, there are the MNC captives that have located shared services
centres (J.P. Morgan) or contact centres (Dell) in Scotland.
These examples demonstrate Scotland’s attraction as a nearshore location. Scotland
has benefitted historically from corporate decisions to locate or relocate facilities
because of relatively low costs in relation to other higher cost locations in
combination with an ensemble of factors: high skills, availability of these high skills,
educational resources, linguistic capability, the commitment of its workforce, low
attrition rates, infrastructure and transport, government and investment agency
support, political environment and so on. In the context of an expanding global
market in business services, Scotland has distinct advantages that can be emphasised
in the attempt to attract multinational service companies to invest in Scotland.
The second dimension to nearshoring is the longer-term dynamic of relocation within
the UK by which organisation choose to move facilities from the higher cost
metropolitan area to Scotland. There are many examples of this. The significance of
this established trend is that the evidence of success can enhance the reputation and
profile of Scotland internationally as a destination for shared services, business
processes and contact centres. We note that insofar as offshoring had had an impact
on UK financial service organisations the impact has probably less on employment
levels and facilities in Scotland than in other parts of the UK (Taylor and Bain, 2006).
There have been instances where companies’ decisions to offshore have actually
benefited Scottish operations since have closed or downsized operations elsewhere in
the UK, but have maintained facilities in Scotland as strategic sites.
Third, as noted above, Indian BPO companies have increasingly sought to develop as
global service providers. The extent of their ambitions can be seen in the fact that they
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operate an increasing number of facilities in the UK; HCL in Belfast and Armagh,
FirstSource with two facilities in Northern Ireland and Tata Consultancy Services in
Peterborough. Hero-ITES’s purchase of the Scottish-based outsourcer Telecom
Service Centres (TSC) means that Indian BPO has a direct presence in Scotland.
Promoting Scotland as a BPO hub can only increase the country’s attractiveness to
Indian companies. Nevertheless, as Nasscom (2009: 76) has acknowledged, while
Indian BPO companies have continued to expand into other geographies, the ‘pace
was somewhat muted’ in 2008.
Fourth, the growth of the domestic outsourced sub-sector has been a significant
feature of the development of the Scottish contact centre generally over the past
decade. By 2008 as many as 24,000 were employed in outsourced operations in
Scotland (Taylor and Anderson, 2008). Outsourced employment as a share of total
contact centre employment has grown from 1 in 5 in 2000, to 1 in 4 in 2003 to almost
3 in 10 by 2008. Given widespread predictions that outsourced operations would be
particularly vulnerable to offshoring it is remarkable that domestic outsourcing
continues to demonstrate such vitality. Such dynamism resonates with the broader
objective of promoting Scotland as global hub for business services. That Scotland
possesses such a diverse range of outsourced companies and BPO activity on this
scale is additional element in the Scotland’s proposition.
Taken together these aspects of current contact centre and BPO activity demonstrate
the strengths of Scotland’s proposition and indicate the position Scotland occupies
within the emerging global business services delivery chain. The evidence
demonstrates that Scotland has already attracted investment from global MNC service
providers wishing to deliver services to the UK and EMEA markets. Arguably the
strongest element in its proposition is its ability to act as nearshore location offering a
high skill base in combination with relatively lower costs in comparison to say
London and the south-east of England. Of course, in this respect Scotland can be seen
to be in competition with other European cities and areas (e.g. Dublin and the
Netherland for multilingual activity) and with other UK cities and regions as a
nearshore location.
3. Sources of Data
The following evidence from India derives from a number of sources. The first source
was data gathered at the Nasscom Leadership Forum. Attendance at the relevant
sessions of the conference enabled the author to document the perceptions and
perspectives of the industry leaders and to record the discussions of participants in
open discussion sessions. Some limitations of this evidence should be acknowledged,
There was a tendency for corporate leaders to refrain from presenting a full and frank
account of company and market conditions for reasons of commercial confidentiality.
In addition, Nasscom wished to ensure that the India’s IT and ITES-BOP industries
were presented in the best possible light, to the extent that there was something of an
optimistic party line in evidence. Therefore, supplementing the formal version of
events the author drew upon valuable insights from informal discussions with a range
of industry personnel and informed commentators (Nasscom, consultants, business
journalists). The author was able to tap into the collective intelligence of a network of
contacts established over six years of attendance at Nasscom conferences.
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Following the Forum fieldwork was conducted in Banaglore and in Kochi. In
Banaglore visits were made to three BPO companies (Axa, Mphasis, and another
company that requested anonymity) and interviews conducted with senior managers at
these organisations. An additional interview was conducted with a leading figure in
the history of the Indian BPO industry. Meena Ganesh had established one of the first
significant indigenous BPO companies (Customer Asset) which was sold to ICICI
OneSource in 2003 and had then established and managed Tesco’s Indian service
centre from which she had very recently retired. These management perspectives were
complemented by interviews with employees at team leader and agent level.
4. An Evaluation of the Indian BPO Industry
The Nasscom Leadership Forum took place against the most uncertain background
that the Indian IT and ITES-BPO industries have ever encountered. For the two
decades of Nasscom’s existence India’s IT and (latterly) its BPO sectors have
undergone sustained, even breathtaking, growth. However, global financial crisis and
economic recession now threaten to reshape the Indian BPO landscape. It could not be
otherwise given that India’s national proposition was and is based upon it becoming
‘the world’s back office’. Its insertion into the global market as a supplier of low cost
software and business services depends upon client demand from the developed
countries, particularly the US and the UK.
Prima facie, then, economic recession is inevitably going to have an impact on India’s
BPO industry. In the preface to Nasscom’s 2009 Strategy document, its President
acknowledges, ‘The IT-BPO industry in India is an integral part of the global value
chain and the recessionary wave sweeping the world has a direct bearing on the
industry...’. How could it be otherwise when 60 per cent of value of BPO services
delivered from India are from the United States and 22 per cent are from the U.K.
(2009: 64), notwithstanding the efforts of the industry to lessen their dependence on
these geographies (2009: 43). Leaving aside the effects of any future decisions by
companies in these developed geographies to restructure and re-engineer processes
which might impact on future offshoring flows, decline in overall demand would have
inescapable consequences for remotely delivered business activity and hence revenues
and employment levels.
Furthermore, there is the issue of the sectors that are most vulnerable to the effects of
contraction. In this regard, it can be suggested that it is not good news for India, since
the most important ‘vertical’ is BFSI (Banking, Financial Services and Insurance).
According to Nasscom (2009: 58) 50 per cent of the revenue value comes from this
vertical, followed by 22 per cent from telecommunications and technology. Of course,
the recession has spread far beyond its sectoral origins in financial services to impact
on all sectors of the economy. Clearly, contraction across diverse sectors will impact
upon Indian BPO.
In short, just as India’s increasing interaction with the global economy over the past
two decades has been to its massive advantage, so too must the reality of global
service delivery bring adverse impacts, at least in the short or medium term. The
debates at Nasscom produced contradictory assessments of the impact of the recession.
It should be emphasised that this uncertainty is rooted in a genuine lack of knowledge
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regarding emerging trends. To put it simply, no industry leader can predict future
developments, not least because the depth, severity and temporal extent of the
recession are unknown. As the Nasscom Strategy document succinctly summarised
‘the industry is divided about the likely impact of the recession’ (2009: 39-40). It may
be helpful to express the contradictory assessments by categorising reported
perceptions according to optimistic and pessimistic scenarios.
4.1 The Optimistic Scenario
The optimistic scenario is rooted largely in the perspective promoted by Nasscom, but
was reflected and re-iterated by other industry leaders. Nasscom began with
emphasising the recent development of Indian BPO. It is helpful to remind ourselves
of the trajectory of growth of the BPO industry in terms of its employment.
Year
Employment in BPO
% rate of growth
2002
107,000
n/a
2003
171,000
59.8
2004
216,000
26.3
2005
316,000
46.3
2006
409,000
29.4
2007
553,000
35.2
2008
704,000
27.3
2009
790,000
12.2
Note. The 2009 employment level for 2009 is Nasscom’s estimate rather than a verifiable figure.
As can be seen the BPO sector grew extremely rapidly year on year from 2002 to
2008. Although expansion had continued in the past year, the rate of growth can be
seen to have slowed. Looking ahead, Nasscom presents a bullish prediction of
expected growth for FY 2008-9 based upon the fact that BPO had been the fastest
growing segment of the ITES-BPO industry as a whole and based upon the
established strengths of the industry as the globally most significant destination for
BPO. Ganesh Natarajan (Nasscom Chairman) led the upbeat tenor at the inaugural
session, insisting that there would still be 16-17 per cent growth in the current year.
However, it should be acknowledged that this broad and non-specific prediction
applied to both the IT and ITES-BPO segments.
In presenting provisional findings from its forthcoming report Noshir Kaka, Director
of McKinsey, made the passing comment regarding the impact of the recession that,
‘It might not be as bad as some people think’. It should be recalled that McKinsey - in
partnership with Nasscom - produced several influential reports that simultaneously
evaluated the state of the industry and sought to influence its growth (e.g. 1999, 2002,
2005). McKinsey’s optimism is based upon two elements. Firstly, looking backwards
to the strengths that have been established and, secondly, projecting forwards to
where the Indian IT and ITES-BPO industries will be in 2020. However, it is an
indication of the uncertainty surrounding the industry that McKinsey is consciously
avoiding making predictions regarding the short and medium term prospects and in
concentrating on the long term view.
The core of the optimistic case surrounds the longer term responses of organisation to
the effects of the recession. While paralysis might be gripping companies in the
developed companies (United States and UK) and preventing them from making
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definitive decisions regarding offshoring, this situation of stasis will not continue
indefinitely and, driven by renewed pressures to cut costs, companies will begin again
to make offshoring and outsourcing decisions that will lead to the increased migration
of services. This applied to both the IT and the ITES-BPO segments. For example,
Denny Maguire, Chairman Emeritus of TPI, predicted that there would be ‘big waves
of outsourcing when the turnaround comes’ predicated upon thoroughgoing
reorganisation and the restructuring of services. David Andrews (CEO Xchanging)
amplified this optimism, ‘I really do see BPO booming in a busted economy’. Kevin
Campbell (CE Outsourcing, Accenture) insisted that the recession open up
possibilities for companies delivering BPO. ‘It’s a great time for the industry. Yes,
there are things we have to navigate but there are many opportunities’.
For companies delivering services from India it was imperative that they use the
forthcoming period to reduce the cost base to make them more attractive when
demand for outsourced services grew again. It was argued that during the recent years
of growth many inefficiencies had accumulated which could now be addressed. S.
Ramadorai (CEO, TCS), stated that the recession might be a blessing in disguise
‘forcing us to be more efficient’. John Nelson, CEO Nelson Hall, insisted that ‘cost
pressure is good for BPO’.
In outlining Nasscom McKinsey’s ‘Agenda for Action’, Ganesh Natarajan emphasised
the fundamental need ‘to transform the existing cost structure’, reducing costs by 2030 per cent. The means for realising this objective lay largely in the adoption of what
McKinsey has termed ‘process excellence’ since 2005 and which Genpact terms
‘process excellence’. Without going into the detail of what constitutes process
excellence, the main elements include improving technology platforms, performance
management and more efficient utilisation. A number of contributors made specific
reference to the benefits of adopting ‘lean’. Indeed, a commonly stated theme was the
potential to leverage improvements in productivity essentially through the
intensification of effort.
John Nelson expanded on the theme of how to take the cost out of process delivery
without losing customers and suggested that a key innovation could be the provision
of on-line self services which, when combined with voice services, would create
‘mixed channel’ delivery. The importance of the growth of automation was referred to
be several industry leaders, including Pramod Bhasin, President and CEO of Genpact.
Given the prominent and innovative role played Genpact in the Indian BPO industry,
this company’s interest in providing automated services should be regarded as
significant. John Wilmott (CEO Nelson Hall) suggested, ‘If you can integrate voice as
part of multi-channel delivery, then the impact might be less significant when the
demand for voice comes down’.
The optimistic scenario contained additional elements; Indian providers should
concentrate on diversifying their activities in the other BRIC markets (Brazil, Russia,
China); particular activities should be targeted as being recession proof (e.g.
healthcare services); in the short term the ‘collections business’ including debt
recovery (an area of strength in Indian BPO) is certain to be successful; Indian
companies should develop make strategic alliances or acquisitions.
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One other strand in the optimistic discourse was the view that the domestic BPO
market was growing remarkably and would be able to offset possible contraction in
volumes of work and revenues from the international facing industry. This was a
consistently re-iterated theme of the Conference.
Underlying the positive scenario is the following narrative. The ‘addressable market’
for BPO at a global scale remains massive and, irrespective of the effects of recession,
is continuing to grow very rapidly. India will be in an excellent position to benefit
from offshoring and outsourcing decisions although this will require companies to
increase their attractiveness to clients by going beyond labour arbitrage, by continuing
to rise up the value chain, by capturing domain knowledge and by delivering end-toend services. In the final analysis, despite the rise of competitor destinations (e.g.
Philippines, Eastern Europe) India remains overwhelmingly the most important
destination for BPO with the largest concentrations of fluent and available English
speakers.
4.2 The Pessimistic Scenario
In contrast, many raised concerns regarding the depth and severity of the recession.
For example, N R Narayana Murthy (Chairman and Chief Mentor, Infosys)
emphasised the similarities with 1929 and suspected that this would be a long and
hard recession. Others expressed similar sentiments. Vineet Nayar, CEO of HCL,
described the industry as being in a dark tunnel and that ‘clients are telling us that
they are in trouble’. He used what became a recurring metaphor in the ensuing
debates when he described clients as being ‘like deer caught in the headlights’, not
knowing how to respond.
Consultant Dana Stiffler (Director of AMR Research) believed that ‘what was
different about this particular downturn was its magnitude’ and there would be ‘a
couple of years before there was a healthy bounce’. Other contributors reported
gloomy scenario of clients ‘cutting back hard’, of falling transaction volumes leading
to revenue decline, price re-negotiation and of little prospect of major new projects.
In an insightful comment, Peter Redshaw of Gartner stated that there would not be
‘ return to normal’ as far as banking was concerned with a new world of low margins
and higher regulation. This sort of insight is hugely important given the significance
of BFSI to the Indian BPO sector.
Ganesh Laxminarayanan (V-P, Global Consumer Services, Dell) evaluated the current
state of the market in the context of the last four recessions and concluded, ‘The news
is not good. The worst is yet to come’. He returned to this pessimistic view later in the
discussion arguing that the BPO industry was ‘in denial or going into denial’ given
that BPO companies in India were servicing companies that were not growing or were
going to shrink. For him the central task was to shed the habits that had accompanied
30-35% growth rates. The point being made here is the same as that made by
Ramadorai above that ‘inefficiencies’ in labour productivity and labour costs have
developed as the industry has grown. Industry optimists focus on the opportunities
created for the industry to become leaner and fitter, while the pessimists focused on
the scale of the problem.
11
Caution was also expressed regarding the ability of the domestic BPO and IT markets
to offset the decline in international facing work. According to Nadnan Nilekani,
Chairman of Infosys, the domestic industry was around 1 percent in value term of the
global market and could not act as a substitute for relative decline in the volume and
value of international service provision.
4.3. KPO and Complexity
Despite predictions dating from around 2005 that KPO (Knowledge Process
Outsourcing) would grow significantly in the Indian offshored marketplace, there are
indications that this move to highly complex and/or professional services work has
not taken off as anticipated. This author (Taylor, 2008: 6) reported that at the
Nasscom ITES-BPO Strategy Summit in Bangalore a number of industry leaders had
expressed their reservations with an orientation on KPO that had been a distraction,
deflecting attention from the core successes of Indian BPO service providers in
providing largely standardised back office processes and voice services.
Peter Redshaw, Gartner (V-P Research) confirmed the trend that had been explicitly
acknowledged at the Nasscom ITES-BPO Summit in 2008. He indicated that there
had been a shift back to the high-volume, low-value ‘traditional nature’ of back office
processes away from KPO which included greater concentration on payment, cards
and reconciliation in financial services work. The document produced by KPMG
(2008a) for the Nasscom leadership underscored the growing global importance of
KPO, but also confirmed the very limited scale of the Indian KPO industry to date
even though India is the most important destination for offshored BPO. As Bhasin
(Genpact) summarised, ‘The offshore world has opened the doors for a lot of complex
processes to be moved’, but despite the undoubted potential this migration still remain
limited in practice.
Evidence from Nasscom’s 2009 Strategy Review supports the view the bulk of BPO
services delivered from India remain standardised. It is estimated that 44 per cent of
the value of BPO lies in Customer Interaction Services which is largely synonymous
with contact centre sevices (Nasscom, 2009: 66). While other voice services are
subsumed within vertical specific services, it is not unreasonable to conclude that 50
per cent of the industry remains in contact centre or voice services. As a number of
commentators emphasised, BPO is a ‘scale’ game and increasingly the fundamental
demand by clients for high volume, high quality and low cost is going to drive
location and shape the Indian industry.
There was much discussion on the need to move beyond labour arbitrage, on the
importance of rising up the value chain and on the importance of delivering ‘end-toend’ services. These were themes familiar to the author. Since first attending Nasscom
conferences in 2003 industry leaders and Nasscom generally have spoken about the
need to deliver services of greater complexity and quality, of the need to capture
domain expertise and to provide end-to-end services.
The question that is suggested by this discussion is the extent to which this shift has
been achieved and the extent to which this remains aspirational. The verdict delivered
in 2006 was that the bulk of the services delivered from India remained transactional
and standardised, notwithstanding caveats and qualifications. This appears still to be
12
the case. To the extent that there has been a rise in complexity, this remains within the
overall context of standardisation, notwithstanding the limited growth of KPO, more
sophistication in some voice work (technical help) and so on.
4.4 Impact of Satyam
Scant mention was made of the Satyam scandal during the proceedings of the
conference, other than in the most general or oblique of terms (as in references to ‘that
company’). At the inaugural session of the conference Nasscom’s Chairman stressed
that ‘all was well with India’ in the wake of Satyam. While it is understandable that
Nasscom would wish to downplay Satyam’s significance and to contain the
discussion, the failure to address the issue openly was probably counterproductive as
far as Nasscom’s overall interests were concerned. It appeared that there was quite
widespread concern amongst the delegates regarding the potentially damaging affects
and that India’s offshored IT and BPO industries might be badly tarnished. Several
delegates and commentators emphasised their concerns to the author and believed that
a full discussion should have taken place which could enable confidence to be
restored.
Anecdotal evidence was given of Indian companies (in IT services admittedly) having
failed to win contracts because of the Satyam effect. Of course, the truth of such
claims could not be established but there is no question that the Satyam issues was
continuing to contribute to the general air of uncertainty surrounding India’s
offshored IT and ITES industries. A manager interviewed in Banaglore reported that
Satyam was having a big impact on the market. It remains to be seen whether Satyam
can
become
a
viable
proposition
as
recent
reports
suggest
(http://www.siliconindia.com/shownews/Satyam_back_on_track_again_Clears_salary
_and_other_liabilities-nid-54697.html).
4.4 Impact of Mumbai Attacks
As with Satyam, there was a reluctance to discuss the potentially negative
consequences of the terrorist attacks on Mumbai. In portraying India as a destination
for inward investment in the best possible light it is understandable that Nasscom
would wish to minimise concerns regarding political stability. Nevertheless, a number
of participants did make reference to the attacks and to the potential consequences,
notably Pramod Bhasin of Genpact, who acknowledged that ‘it is an issue on the
customer’s mind’, and added that every time an incident like Mumbai happened or
there was tension with Pakistan, customers expressed anxiety. Geo-political
considerations were certainly an element in the calculations made by customers
regarding the location of services. In making these comments, Bhasin was confirming
the importance of political stability as a facilitating factor or political instability as a
restraining factor in strategic offshoring decisions. These factors had been clearly
evident in 2003 at the time of our first report on offshoring, following the events of
2002 when war between India and Pakistan had threatened.
In informal discussions, participants confirmed the significance of the Mumbai
attacks. While in and of itself the incident would not led to the cancellation of
13
contacts or would prevent further contracts being signed, it was felt that it could prove
to be a ‘tipping point’ in the matrix of calculations made by customers. It was
generally believed that a repeat incident of similar or even lesser scale could have far
greater significance, particularly if they included personal attacks on western
businessmen.
4.5 Protectionism
A significant themes of the conference discussions surrounded the possibility that the
United States might pass protectionist legislation that would impact upon offshoring.
The trigger for such concerns lay in remarks made by President Obama. Despite
concerns that reprised those which had emerged in 2004 during Kerry’s candidacy for
the Presidency, the general consensus was that protectionism would be likely to
remain at the level of rhetoric rather than to be translated into the concrete reality of
legislation. Many delegates asked me about the position of the government in the UK.
At least some of this interest was stimulated by the recent oil refinery disputes that
has raised the slogan ‘British jobs for Briutish workers’. I explained that it was almost
impossible to conceive of circumstances in which government in Britain would
intervene in a protectionist manner to prevent the global movement and location of
business services. The issue provided the opportunity to emphasise that Scotland is a
destination country seeking to provide services onshore, nearshore and globally.
4.6 The View From Banagalore
The fieldwork conducted on the ground, particularly in Bangalore, provided valuable
complementary insights into the state of the industry. Without repeating the detail of
each of the interviews, I will summarise the main themes to emerge.
Firstly, there was some evidence of slowdown. Although the pace was uneven and
different responses were made by managers in different companies, it is clear that
there have been restraints placed upon recruitment. The effect seems to have been
more explicit in IT rather than BPO since there have been some significant layoffs
reported in the former. This confirmed the suggestion made by some at Nasscom that
the recession so far had had a greater effect on IT and software than on BPO. In the IT
industry the ‘bench’ was being extensively used. There are a number of ways in
which the ‘bench’ is used; as a means to keep people on the books and pay them a
minimum while they develop their skills; to keep skilled people on the company at the
end of a project. The evidence was that the bench was being more widely used in
BPO. Other evidence of headcount reduction was freezing posts, letting attrition
reduce the size of the workforce.
Second, both managers and workers reported that attrition levels had reduced
dramatically in the previous few months. One manager reported on the obvious
impact of recession that ‘..people are now more likely to keep their job than go and
look for another one with another company’. Workers interviewed stated that they
were intent on keeping their ‘heads down’ realising that the expanded opportunities
were no longer available as they had been until recently. One manager vividly
reported that the threat of recession had enabled them to solve their attrition,
attendance and misbehaviour problems at a stroke.
14
Third, there is evidence of moves towards ‘process excellence’, intensification of
effort and lean. One senior manager explained the general trajectory by the following
illustration. ‘The other significant thing is that companies are moving to a lean syatem.
It’s like, if I can sum it up, if 12 people were required for a process, I would now look
at 8 people doing that process. There is no flab, no extra cover, no buffer and this is
happening generally’. The move to more systematic and intensive forms of
performance management is leading to the shakeout of ‘underperformers’, to use the
term used by one manager.
Fourth, related to the above issues are other more explicit pressures on labour costs.
Managers reported on how bonuses would be reduced if not frozen, how salary hikes
in the forthcoming period would be kept to a minimum, how they were targeting
recruitment amongst at less experience freshers rather than more expensive and more
experienced staff and how promotion would be more of an internal process than
recruiting externally.
4.7 Competitor Countries at Nasscom
Given the importance of the global market for BPO, it is important to take note of the
countries that are prominent in pushing their profile at Nasscom. While many
countries had a presence through stalls, publicity material and the sponsorship of
sessions, particular mention should be made of the prominence of delegations from
Poland and from Egypt. The profile from diverse UK regional investment bodies was
far less than in previous years.
5. Conclusions
The overall conclusion is that of increasing uncertainty in the global and the Indian
BPO industry. Notwithstanding the recognition of profound difficulties emanating
from the global recession there is one sense in which the optimistic scenario has
salience for Scotland and its ability to promote itself as a BPO destination.
Irrespective of the extent and the depth of the recession and the prospects for the short
and medium term, the potential or ‘addressable’ (to use McKinsey’s term) market for
BPO is enormous and is likely to lead to growth in the longer term. We should
recognise that we are still in the early stages of the outsourcing of business processes.
The key question then becomes how Scotland can capture a larger share of a growing
global market.
5.1 Scotland’s Proposition
Self-evidently Scotland is not in a position to compete in terms of strict labour
arbitrage on an overall cost basis with Indian BPO suppliers. The author has
consistently argued that Scotland’s attraction as a home for BPO services generally
and for call centre services in particular does not lie in direct cost comparisons
between the UK and India (see Taylor and Bain, 2006). What has always mattered has
been the combination of relatively lower costs (in relation to the higher cost locations,
notably in London and the South East) and other factors, notably skills and labour
quality, availability of labour, accommodation costs, infrastructural links, industry
maturity, linguistic and cultural empathy. Scotland can continue to promote itself as
15
an onshore and as a nearshore destination and can attract global services providers
that can serve UK/domestic and European markets.
One approach that can be usefully adopted which might help us to identify those
elements that can be included in Scotland’s proposition is to consider those elements
where India can be seen to have weakness. A number of elements are important here.
First, there is the question of KPO. As mentioned above, despite predictions that KPO
would grow significantly in the offshored Indian marketplace, there are indications of
its limitations. Second, in the 2008 contact centre audit companies operating call
centres in Scotland widely reported the perceived linguistic and cultural difficulties
associated with delivering more complex voice services from India. There is no need
to repeat the detail in this report, but it is interesting that some participants at
Nasscom did make specific reference to this weakness. As we know there is evidence
in recent years of the return of some call centre activity from India, however this does
not diminish the possibility of further offshoring (e.g. T-Mobile contract from TCS
Larbert to the Phillipines). Third, despite some unconvincing claims to the contrary,
India is incapable of delivering multilingual services. This has been identified as a
major strength in the Scottish market (viz IBM, NCR, Sykes). Fourth, it would appear
that India has made limited progress down the route of automation and self-service.
The development of blended, multi-channel interactive service contact could be a
strong element in Scotland’s proposition.
One term that might summarise the attractiveness of Scotland in the context of the
global relocation of business services is that of the flight to quality. This was a term
that was used widely at Nasscom to indicate the recognition that the Indian BPO
industry has to continue to move beyond labour arbitrage and a straightforward cost
proposition. It is an enduring theme at Nasscom conference suggesting the limitations
that Indian BPO has made towards realising its ambition to deliver more higher value
services of greater complexity. It seems clear that both from the demand and the
supply sides, there is a tendency for more bundling of processes. The recession is
undoubtedly going to lead to the disaggregation and a re-aggregation or business
processes in different and novel ways. Scotland can project itself as a high quality,
high skilled, relatively low cost, low risk and politically stable location for BPO.
Raising Scotland’s profile is a priority.
5.2 Raising Scotland’s Profile in the Global BPO Marketplace
At present, Scotland and its call centre industry and its BPO and shared services
sectors are concealed from global view since Scotland as a locational entity is
subsumed as part of the UK. Scotland does not appear when ‘league tables’ of the
relative attractiveness of countries as BPO locations are considered. Influential
consultants’ surveys and reports that are read widely throughout the global industry
make no specific reference to Scotland.
A good example of this deficit is A.T. Kearney’s Global Services Location Index
(2007), but it is also true of Everest and KPMG reports. As further illustration, at the
Nasscom Leadership Forum, KPMG, distributed a free hard back glossy publication
entitled ‘Exploring Global Frontiers – The New Emerging Destinations’ (2008b),
which provided a series of country and city briefings from all parts of the world of
16
what are considered to be emerging locations. These included Northern Ireland and
Belfast but did not make reference to Scotland or its particular towns/cities.
It is recommended that a strategic effort must be taken by government, its agencies,
development bodies and others to ensure that Scotland can project an independent
national profile as a location for BPO. Several specific proposals can be advanced as
to how this ‘profile deficit’ can be remedied, which can ensure that Scotland can
appear more prominently on the global BPO radar.
First, it is suggested that profiles and data sheets are complied that are consistent with
the templates that are used in reports, such as that published by KPMG. SDI might
then be proactive in communicating this information to the relevant contacts at
KPMG, complimenting them on their report and suggesting that Scotland be included.
The selection of which specific city or town locations should be highlighted is
obviously a question of judgement. The obvious location would be Glasgow due to its
contact centre and shared service strengths. However, Glasgow might be regarded by
KPMG to be too mature and developed to feature as an emerging location.
Alternatives could be considered, such as Lanarkshire or West Lothian which appear
strongly as contact centre clusters (Taylor and Anderson, 2008). Whatever the precise
detail, the most important thing is for lines of communication to be established with
the aim of shaping the content of such influential reports.
Second, ensuring that consultants’ reports reflect the strengths of Scotland as an
identifiable BPO location might require the involvement of the Scottish government
agencies in another respect. Consultants should be briefed on the devolved
constitutional status of Scotland, which would provide additional political justification
as to why its existing call centre and BPO sector should be considered independently
of the UK as a whole. Put simply, if Northern Ireland can be considered a separate
regional/political entity then it should be possible for Scotland to achieve a similar
level of coverage as a distinctive location.
Third, BPO is the internationally used term to denote the outsourcing of business
services. However, this term is not widely employed in Scotland (or to a lesser extent
the UK generally), despite the fact that this term designates an identifiable global
industry, albeit one composed of different components. It is acknowledged that the
infrequent use of this term in Scotland partly reflects the general lack of
acknowledgement of the potential global market in BPO. It is further acknowledged
that the term BPO has been disregarded because government and development
agencies have considered business services in terms of vertical sectors (e.g. financial
services), or contact centres. The term BPO tends to fall between stools as it were. If
Scotland’s proposition is to be enhanced in the global marketplace then the generic
BPO appellation and other terms associated with this distinctive industry should be
widely adopted.
5.3 Looking Ahead to the Nasscom BPO Strategy Summit 2009
In 2007 SDI hosted a session at Nasscom’s BPO Strategy Summit. The specific theme
was Scotland’s strengths as a location for multilingual contact centre activity and
drew upon the testimonies of leading personnel from IBM, Sykes and NCR who were
17
keen to promote Scotland’s national advantage. The intention here is not to be
prescriptive but suggestive of the sort of approach that might be adopted in 2009.
The author of this report believes that while multilingual voice centres undoubtedly
should be included an important aspect of Scotland’s proposition, the agenda should
be widened. Perhaps the best approach would be to promote Scotland as a ‘High
Quality Global BPO and KPO Hub’ covering several areas - multilingual services,
end-to-end processes, shared services, contact centre services, KPO etc. Clear
messages should be conveyed regarding the Scotland’s educational resource,
relatively lower costs, political instability, low risk, infrastructural attributes, maturity,
high workforce commitment, expertise in automation etc.
6. Summary Recommendations

To develop a strategic approach to raising Scotland’s profile as an attractive
location for BPO with the consulting organisations that play such a major role
in shaping perceptions in the global BPO marketplace.

To overcome this profile deficit by coordinating efforts by government,
development agencies and other bodies to ensure that Scotland can appear on
the global BPO radar as a geographical entity distinct from the UK as a whole.

To adopt and to actively promote the use of the terminology that is recognised
universally by the BPO industry internationally, particularly the term BPO
itself.

To promote Scotland as a ‘high quality, high skill, low risk BPO and KPO
hub’ that can deliver a diverse range of activities onshore, nearshore and
globally. This objective resonates with the notion of a ‘flight to quality’ and
chimes with concerns over risk and political stability.

To utilise the opportunity provided by Nasscom’s BPO Strategy Summit in
June 2009 to promote Scotland’s proposition as a high quality BPO hub
amongst many of the players in the global BPO market. Whatever form the
intervention takes, it is recognised that Scotland has a very strong story to tell
and that this story is often concealed from view.
References
A.T.
Kearney
(2007)
Global
Services
Location
Index,
2007
http://www.atkearney.com/res/shared/pdf/GSLI_2007.pdf
KPMG (2008a) Knowledge Process Outsourcing: Unlocking Top-Line Growth by
Outsourcing ‘The Core’, KPMG
KPMG (2008b) Exploring Global Frontiers – The New Emerging Destinations,
KPMG
18
Nasscom (2009) The IT-BPO Sector in India – Strategic Review 2009, New Delhi:
Nasscom
Nasscom-McKinsey (1999) The Indian IT Industry, Nasscom McKinsey Study,
McKinsey and Co/Nasscom
Nasscom-McKinsey (2002) The Indian IT Industry, Nasscom McKinsey Study,
McKinsey and Co/Nasscom
Nasscom-McKinsey (2005) Nasscom-McKinsey 2005: Extending India’s Leadership
of the Global IT and BPO Industries, New Delhi: Nasscom McKinsey
Taylor, P. (2008) Nasscom BPO Strategy Summit, 2008, a Report for Scottish
Enterprise/Scottish Development International, Glasgow: University of Strathclyde
Taylor, P. and Anderson, P. (2008) Contact Centres in Scotland, 2008 – An Audit for
Scottish Development International/Scottish Enterprise, Glasgow: SDI/SE
Taylor, P. and Bain, P. (2003) Call Centres in Scotland and Outsourced Competition
from India, Scotecon
Taylor, P. and Bain, P. (2006) An Investigation into the Offshoring of Financial
Services Business Processes, Glasgow: SDI/SE
19