CHAPTER 3 RURAL BUSINESS PROCESS OUTSOURCING

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1 CHAPTER 3 RURAL BUSINESS PROCESS OUTSOURCING My ideal village will contain intelligent human beings. They will not live in dirt and darkness as animals. Men and women will be free and able to hold their own against anyone in the world - Mahatma Gandhi, quoted in Village Swaraj 3.1 Introduction: This Chapter deals with the evolution of BPO industry, the uniqueness of BPO work, the need for Rural BPO to sustain Indias competitiveness, an overview of the Rural BPO industry, the opportunities in Rural BPO and challenges faced. Rural BPO is nothing but delivery BPO services in a Tier-I/Tier-III/Rural location. Currently, most of the service providers deliver these services from Tier-I locations. Hence before getting into the specifics of Rural BPO, it is necessary to have an understanding BPO and its uniqueness BPO work that are relevant from Rural BPO point of view. 3.2 Evolution of Business Process Outsourcing: Ideally business organizations are expected to focus only core business. They should also work constantly to keep up their competitive advantage to remain in business. For any organization, activities that contribute directly to competitive advantage involve high levels of complex human interactions. Bradford et al. (2005), in the McKinsey Quarterly article, suggests that such activities are considered to be tacit in nature because the people working on such activities have to draw heavily from tacit knowledge, and there are no pre-defined rules in this game. Activities like analysis, innovation, planning, negotiation, coordination, customer interactions and relationship management are examples of tacit activities. Some of the support activities are transactional in nature and do not contribute directly to business. These support activities tend to be routine in nature and are rule-based. Activities such as data entry, verification, etc. are considered as transactional in nature. 60

2 According to Denis Chamberland (2003) the accepted wisdom is that organizations should not outsource activities that are core to their business that is, those activities that are tied up in the organizations identity-and that only non-core activities should be outsourced. Sergei Tiunov (2010) classifies all business processes into three categories: Core activities are essential, defining activities of the organization. If the organization gave those activities to an external party, it would be creating a competitor or dissolving itself. Critical but non-core activities, if not performed exceptionally well, will place an organization at a competitive disadvantage or even create a risk. For example, logistics is a critical but non-core activity for a producer, but it is a core activity for a transportation company. Non-core, non-critical activities supply no competitive advantage. Even if performed poorly, they are less likely seriously to harm the organization in the short term, although they are still important. Sharpe (1997) asserts that through outsourcing of non-core activities, firms can concentrate on core competencies and improve their productivity, competitiveness, and sustainability in the marketplace. Dekkers (2011) recommends that firms should consider their core competency when deciding to outsource. He classifies firms activities according to the location of their performance; that is, as outsourcing to a supplier firm, as internalization, or as near-core activities under a strategic partnership. The concept of outsourcing gained visibility with the recession of , that forced companies to outsource transaction-oriented activities to cheaper locations. Thus, reducing cost and increasing efficiency were the driving factors which propelled companies to outsource from 1990 onwards. 61

3 Figure 3.1: Reasons for Outsourcing According to the research conducted by Muhammad Mohiuddin & Zhan Su (2013) outsourcing of non-core activities and insourcing (internalization) of core activities have a positive impact on a firms integrated performance. However, managers need to identify carefully functions that could be outsourced in order to determine trade-offs between outsourcing and internalization. Elmuti (2003) analyses the relationship between outsourcing strategy and organizational performance. He demonstrates that outsourcing benefits a firms performance by improving its expertise and service quality, minimizing the number of employees it needs, optimizing its processes, and reducing costs and administrative burden. Rajan & Srivastava (2007), the most commonly outsourced activities are IT enabled Business Process Outsourcing (BPO) Services. Activities under this category include Call Center and other back-end business process operations such as data entry and handling, coding, medical and legal transcriptions, etc. IT enabled BPO relates to remote processing of BPO work through technology enablement. 62

4 3.3 Size of BPO Industry: The following Table shows the size of BPO industry globally: Table 3.1: Size of Global BPO Market It is evident that the BPO market is huge. The following pie-chart explains the size of various BPO services in the Global market (HfS Research, (2013)). Figure 3.2: Size of Global BPO/IT Services Market by Service Line 3.4 Outsourcing Locations: The development of Technology has made the world flat and this has made outsourcing of back office services to any location in the world. An employee sitting 63

5 in India can work for a company in United States by accessing digitized documents and the computer systems of the company located remotely. Outsourcing can be both in home nation of the firm as well as abroad and entails an organizational restructuring of some activities. Offshoring on the other hand is restructuring the firm along another dimension namely geography. Selection of a right destination is an important decision in offshoring. If outsourcing happens in the same country it is called Domestic Outsourcing. Services are outsourced more to countries with higher institutional quality and greater cultural proximity. Non-routine, complex and interactive service are outsourced relatively more to countries with a better institutional quality (Runjuan Liu, Dorithee J Feils and Barry Schoinick, 2011). Figure 3.3: Location Attractiveness of different countries 3.5 Location Attractiveness of India for BPO: India is regarded as the premier destination for global Business Process Outsourcing, accounting for almost 55% of the global sourcing market in 2010, according to the Ministry of Communications and Information Technology. The ITeS sector includes IT hardware, software and services. Rakesh Basant & Uma Rani (2004) in their study on the labour market in Information Technology sector observed a rapid rise in the employment in IT enabled services between It increased 64

6 from about 42,000 to 160,000 during this period. According to Nasscom (2012), the Indian IT-BPO sector is estimated to have aggregated revenues of USD 88.1 billion in , with the IT software and services sector (excluding hardware) accounting for USD 76.2 billion of revenues. During this period, direct employment is expected to have reached nearly 2.5 million, an addition of 240,000 employees while indirect job creation is estimated at 8.3 million. As a proportion of national GDP, the sector revenues have grown from 1.2% in to an estimated 6.4% in The growth of ITES BPO industry (included in the IT/ITES Services above) has been stupendous over the last decade. This industry accounts for 34% of Worldwide BPO market as of 2010, by becoming the large destination for BPO service delivery. This growth has been accelerated by buyers of different sizes, across different geographies and different service lines and different industry verticals. The BPO segment in the industry has generated export of USD 14.1 Million in FY While Indias attractiveness is not questioned, the sustainability of its leadership to a large extent depends on its ability to sustain the cost competitiveness. The following Table establishes Indias leadership position in BPO industry: Table 3.2: Indias BPO capability compared to other countries 65

7 The following Table provides the informationn on market share of India in the Global Offshore BPO market: Figure 3.4 Global Offshore BPO Market share by major players 3..6 Present Status of BPO Industry in India: Nasscom Strategic Review (2012) reveals the current statuss of IT-ITES BPO Industry in detail. The call centre industry used to be the largest segment of employment offshored to India in the early days, encompassing divergent activities, business models and working conditions. In India, Calll centres range from 12-seat backstreet operations subcontracting high-pressure outbound sales campaigns, to large centres with several thousand seats running 24/7 inbound customer service systems for western multinationals (MNCs). Some larger Multinationals started running their offshore operations directly (called Captive operations) example, American Expresss 7000-seat, Dells 4500-seat and Ford 2000-seat centres, all in Metro cities. Post 2002, as the ITES BPO industry started maturing, corporations have been engaging large Indian outsourcing companies such as TCS, Infosys and Wipro to run the centres. Increasingly, Indian outsourcing majors provide consolidated service packages including network management and other back-office operations as well as the call centre (Jonathan Murphy, 2011). This industry now consists of over 5000 organizations and four types of players are engaged in providing BPO services. The types of players are (1) Large Integrated Players (1/3 of revenue and 28%-32% of employee base (2) Pure Play BPOs (25-30% of revenue and 30-34% of employee base (3) Captive BPOs (20-25% of revenue and 12-15% of employee base and (4) Emerging or Niche BPOs (20-25% of revenue and 66

8 25% of total employment. Indias main strength is English, over 4 Million English speaking graduates pass out every year.us and UK customers contribute 82% of Indias ITES BPO revenue generated for FY Export Market for IT/ITES Domestic Market IT/ITES Figure 3.5: Indias Export & Domestic BPO This industry is expected to add 230,000 jobs in FY2012, thus providing direct employment to about 2.8 million, and indirectly employing 8.9 million people. 58% of the workforce in IT/BPO industry is from Tier-II/III cities, 74% of the workforce below 30 years; 31% are Women employees BPO alone contributes USD 16B to Indias exports and employs 876,000 people. 3.7 Unique features of BPO work: For a better understanding of Rural BPO, it is necessary to understand the unique features in BPO that have some relevance from Rural BPO stand-point. 67

9 1) Night Shift & Holiday working: United States is a major market for Indian IT and BPO sector and because of time-zone difference and the need to provide real-time support for bulk of the work carried out; shift working is prevalent in the industry. For example, 10:00 AM in California is 10:30 PM in India (Pacific Daylight Saving time is 11:30 hours behind Indian Standard time). Hence the BPO employees in India, who work on Business Process work from a company located in California, may need to work during the night only. The most widespread shift system is when production is organized in eighthour shifts, called morning, evening and night shifts (Knutsson & Scand, 1989). In the BPO industry, typically BPO staff in India support US customers work in Night shift. People who are supporting European region work post-noon shift. Unlike IT jobs, which have some onsite component in service delivery to support customers in US, BPO jobs are significantly offshore based. Shift working in IT is relatively less compared to BPO. Shift working is very much become part of the BPO operation. Off late, because of the cost pressures, service providers resort to shift working to maximize capacity utilization (also known as seat utilization) and hence shift working is also considered as a lever for cost reduction. There is an expectation that a BPO job aspirant should be prepared to work in night shift considering the nature of the work performed by Indian BPO industry. Similarly, an employee in India who is supporting a customer in another country say United States may even need to work on a festival holiday in India. But he may enjoy a holiday in India, when customer country has a holiday say, for example, US Independence Day. 2) Transactional nature of the work Business Process Outsourcing in India is organized in many segments. Backoffice processing and customer interaction services are among the fastest and largest growing segments that contribute significantly to the Indian BPO market. The main activities or areas covered by the BPOs include customer care, finance and 68

10 administration, medical transcription, insurance claims, inventory management and HR and payment services including payroll, credit-card services, check processing, and employee leasing. Data processing work and rule-based work which are voluminous and labour intensive are largely outsourced to India. Adherence to the Standard Operating Procedure is a must. Hence the processes are documented, and people are trained before the start working for the customer. Figure 3.6: Different Levels of Complexities in BPO 134 The skill set required for Data Entry, and Conversion is very basic in nature. Even undergraduates with English proficiency and job-related training may be able to perform. 3) Service Levels When a customer enters a BPO contract with a BPO service provider the service levels are defined and agreed. These are measured during the tenure of the service on a periodical basis and shared with the customer. If the agreed service levels are not met, depending upon the terms of the contract there could be financial liabilities for the service provider. If the service provider is not able to meet the service levels for a longer period, depending upon the terms of the contract, the customer may also terminate the contract. The parameters typically cover the timeliness, accuracy level and efficiency. Following are the examples: 69

11 Typical Service Level for a Call Center Work in BPO Figure 3.7: Service Levels in a Call Center BPO An Example Quality is given utmost importance in BPO industry. The performance of the work is checked for quality almost daily, and the large BPO organizations use workflow systems to track the Service Level metrics. The service provider organization traces the details of productivity, accuracy and other parameters at the employee level using the workflow systems. Training, Promotion, Rewards, etc. are linked to the day-today performance at the individual level. 4. Data Security & Control: BPO Service providers need to give high importance to the security of data if they are dealing a lot of confidential data. For example, credit card information, personal details of customers employees or customers, health information, etc. Compliance under ISO Standard 27000, which deals with Information Security Requirement, HIPPA, Sarbanes-Oxley, etc., may also be insisted by the customer outsourcing the work. Besides that they the customer may also insist for control requirements with respect to technology namely, Firewall, Access Controls, Encryptions, Password controls, Data Server security, backup process, installation of surveillance camera, restriction on internet access, usage, etc. There may also be a need for physical control such as restricted access to customer delivery area, 70

12 swiping of the access card, physical check at entry and exit, restriction on usage of storage medium, restriction on printing, etc. The employees may also be asked to sign Non-disclosure agreement depending on the nature of work carried out. For critical operations, Disaster Recovery Plan and Business Continuity plan are also be required. 5. Governance & Virtual Meetings: According to Bradford C. Johnson, James M. Manyika, and Lareina A. Yee (McKinsey Quarterly, 2005), Outsourcing, like the boom in global operations and marketing, has dramatically increased the need to interact with vendors and partners. And communications technologies such as and instant messaging have made interaction easier and far less expensive. Since the customers are located in a different geography, the service provider management teams at the customer-end have regular phone calls. Reporting mechanism on the day today performance of business process exists. All the communications happen by or phone call. Transparency and reporting of exceptions and problems and good governance mechanism is the critical for delivering service to the customer in a remote location. 6. Cultural sensitivities: The employees in BPO mostly handle customers in a different geography, and they need to understand and be sensitive to the culture, expectations, geography, business practices, etc. relating to the location concerned. For the customer, India BPO delivery center is just their extended arm. For example, expectation on punctuality & meeting committed timelines is different in western countries. While the BPO Service Provider trains the employees on these areas, on the day to day dealings, these employees expected to adapt themselves. 3.8 Future of Indian BPO Industry: Nasscom-McKinsey study (2008) review the performance of ITES industry for the previous year ten year period and observed that he ITES BPO industry enhanced Indias credibility as a destination by creating a fundamentally new model 24/7 Service delivery, forging relationships with 75% of the Fortune 500 companies, 71

13 generating immense saving for customers (saving from global sourcing for customers amounted to an estimated USD Billion in 2008 alone), and promoting a focus on quality (65% of all Capability Maturity Model or CMM level 5 firms are based in India. The industry has also set a precedent for talent practices in India. The study concludes that India needs to sustain this advantage by removing the constraints of talents and physical infrastructure. Rafiq Dossani and Martin Kenney (2006) observe that the remarkable aspect of service offshoring that we have noted is the rapidity with which it can occur. The study shows that India experienced vertiginous growth as they expanded from start-up to 5,000 employees in less than three years The outsourcing companies focus on cost reduction has not changed. The following chart prepared based on the findings from a recent study conducted in 2011 shows cost reduction still continues to be the primary driver for outsourcing of Business Processes: Figure 3.8: Reasons for Outsourcing (2011) But sustaining the cost saving potential on account of outsourcing is a major challenge faced by the industry. While India has emerged as a leader, the question is whether it can sustain the market share is a big question considering the global market conditions, political developments, increasing costs, challenges in scalability like attrition, infrastructure support, global competition, etc. According to Ashok Guha and Amrit Ray (2004), the advantages of India, name English speaking capability 72

14 and low cost of labour are far from permanent in character. With some effort, they can be replicated in other countries, and they can be irreparably damaged if not destroyed by unimaginative policy. Though these comments to relate to Information Technology Outsourcing, it may well are applicable to Business Process Outsourcing as well. The following recent developments are worth noting in this regard: 1) According to a recent study conducted by ASSOCHAM (2011) Indias prominence as an IT/ITES hub has been declining owing to diminishing employable talent pool, High cost of doing business due to inefficiencies of power, transport, security, concentration in metros due to inadequate infrastructure in other towns, etc. More than 90% of revenue is generated from Tier-I cities only. There exists a real threat to the industry, if India is not cost competitive and BPO jobs may be shifted to locations like Philippines, Vietnam, China, Poland, Hungary, Mexico, Brazil, and Egypt. Philippines offer a suitable alternative to India IT/ITES BPO industry. In fact, ASSOCHAM Pulse Survey Report (2012) on IT/ITES industry that observed movement of some ITES BPO jobs in Bangalore and Hyderabad to Philippines. 2. China, which was not considered as the best BPO location for want of English fluency, is focusing on becoming a viable alternative to India. With the support of the Chinese Government, the challenges of China BPO market are getting addressed, and it can become the low-cost large pool resource hub for BPO (M&Y Global Services, United Kingdom, 2010). 3. As the industry is maturing, the expectations from customers go up. Customers choosing to outsource services can, not only be justified by the drive to reduce costs, but it aims to meet more advanced objectives as accurate alignment with business strategies of the enterprise. As a result, outsourcing has reached new forms of expression that can help the enterprises to gain competitive advantage (I. Andone, Vasile and Daniel W.Pavaloaia, 2010). The expectations from the customers of BPO are going up, and they look for transformational benefits not just labour cost arbitrage. Indian BPOs have to focus on Value Creation for the customers. According to Hecketts 2008 Globalization Performance Study, BPOs fall short of 73

15 their goal of driving innovation. Only 17% of users were satisfied with their BPOs ability to innovate. 4. According to Logicas top 10 predictions in ITO-BPO , Nearshoring will become much more prevalent. Within the USA, rural sourcing will become a niche market (in The Outsourcing Enterprise - Building Core Retained Capabilities by Leslie P. Willcocks and Andrew S Craig (2007)). It would mean that the US jobs will remain in US and to reduce the cost, low cost location within US will be explored instead of transferring jobs to locations like India. 5. ITES-BPO concept is yet to become popular in the domestic market in India. Currently, ITES BPO is widely present in Voice based support (Customer Services) only (Source: NASSCOM Strategic Review, 2011). The importance of the domestic market cannot be overemphasized. Anthony P DCosta (2002) observed that the issue is not to promote the domestic market at the cost of the export market. Rather it is to allow the former to play a more significant complimentary role to the latter. It holds good now for BPO as well. Building Sustainability is therefore, the need of the hour for Indian ITES- BPO industry and it has to address various challenges. These challenges relate to both Demand as well as Supply side. Secondly, India is still focussing on the low end of the value chain of business processes, and there is always a risk of these jobs, when another destination becomes attractive. Moving up in the value chain would strengthen sustainability. On the Supply side, India has to address multiple challenges and gaps. These can be broadly classified into: (1) Cost Competitiveness (2) Resource Competitiveness and (3) Service Competitiveness. Due to inflation, attrition, concentration only on Tier-I cities, etc. managing cost has been a major challenge for the past few years. Employability has been another key challenge facing India as the % of employable resources out of the educationally qualified resources has been poor as evidenced by the industry experience and various studies conducted. Containing attrition and managing talent are other challenges relating to competitiveness of resources. Thirdly, as the customer expectations are changing due 74

16 to continuous margin pressures, ITES BPO companies are expected to deliver benefits beyond labour cost arbitrage in order to remain competitive in the market. The Indian ITES BPO companies are looking at transformational initiatives, continuous improvement to achieve Value creation for the customers. One of the solutions to these challenges is to expand of BPO beyond Tier-I cities (hereinafter referred to as Rural BPO) so that Urban BPOs can focus on value-added activities and cost competitiveness of Indian BPO is maintained. The need, opportunities, current status and challenges of the Rural BPO are discussed in the following paragraphs. 3.9 Evolution of Rural BPO: The rapid expansion of BPO companies in select metropolitan cities (Tier-I) caused intense competition for available talent, and this led to frequent poaching of staff. It has led to increase in salary costs and pressure on sustaining the cost saving potential on out of outsourcing. Management of IT-BPO companies find that outsourcing their work to a rural area or Tier-II/Tier-III city in India (hereinafter referred to as Rural BPO) not only yields better profits without sacrificing quality, but also reduces their headache in human resource management. An urban-based Indian company may pay an employee INR 30,000-40,000 per month. But without sacrificing on quality or time, the same work could be done in rural areas and Tier Two cities at INR 15,000 (Sree Rama Rao (2008). Moreover this is now enabled by extensive network connectivity. Rural BPO is one of the few avenues of employment for rural India. It is an attempt to combine entrepreneurship and social empowerment bridging the ever increasing rural-urban divide (Sabyasachi Kashyap, 2009). In the last few years there has been a focus for developing Tier-II, Tier-III and Rural locations for IT enabled services as there are challenges in sustaining cost competitiveness of delivering BPO services from the select cities, which are called Tier-I cities in the industry. 75

17 3.10 Stakeholders in Rural BPO: Rural BPO is nothing but delivery of BPO services in a Tier-I/Tier-III/Rural location, which is predominantly delivered in Tier-I location. As the nature of work in BPO has some unique requirements, like Data Security, Uninterrupted Service to meet Service Levels, etc. it is necessary to ensure the same are fulfilled whether it is delivered from Tier-I city or a Village. Customer, BPO Service Provider, Employees, Government, Local Community and Industry bodies such as NASSCOM are the key stakeholders in setting up and running the Rural BPO. The following diagram explains the role of various stakeholders in Rural BPO: Figure 3.9: Stakeholders in Rural BPO 3.11 What kinds of services are offered by Rural BPO? Rural BPOs have come up as an alternative for low-end, low-skilled data entry work that proves to be costly when worked out of a Tier-I BPO. Services that are more routine less complex or less interactive and services that are delivered in local language would be the potential candidates for promoting BPO in Tier-II/Tier- III/Rural locations. 76

18 From the details available in the public domain, it is found that following are the broad categories of services delivered by Rural BPOs in India; include both voicebased services, as well as data related services. From the secondary data available, it is found that the services delivered from Rural BPOs include Digitization of documents (land records, tax forms, certificates etc.), Customer Service, Data Capture, Billing, Document Verification, Account Reconciliation, Accounts Payable, Web Research & Monitoring, Translation and Transcription. Rural BPOs in India are predominantly cover industry verticals such as Banking (Example, Know Your Customer related processing), Insurance (Example, Premium Processing/Policy administration), Telecom (Billing and Customer Service) and Government (Digitization of records) Need for/objectives of Rural BPOs: The industry experts suggest there are several reasons why rural BPOs are growing and gaining prominence (KPMG (2011), Wharton (2010), Beth Ellyn (2010), Jacob Cherian (2010), Malhotra S. Rathi et al. (2007) and Tushar Kanti (2011)). The major reasons are: 1. Cost: According to NASSCOM-Everest Study report (2008), movement to lowcost Tier-II/III cities is attractive despite lower employability and higher management overheads. As per their analysis shows that providers can reduce total operating costs by per cent by moving to a low-cost city within India. The operational costs like real estate rentals, transportation, and facilities management are also substantially lower compared to Tier-I cities. If Tier-I city is the only option, with the increasing costs in India, the global customers may start looking for alternate cheaper locations outside of India (example: Philippines, China). The cost differential between urban and rural areas helps in sustaining India as an attractive location for BPO. 2. Growth of domestic outsourcing market: The Indian domestic companies explore outsourcing market in order to reduce their costs. Between a Tier-I city and Tier-II/III city, there is a significant cost differential (refer to the Table 3.3 on Comparison cost between Mumbai & Madurai). The advantage in leveraging rural 77

19 India for the domestic market is that the skill set (mainly communication skills) requirement for handling BPO processes for a domestic company is relatively lower compared to global corporations. 3. Local Language: Rural BPOs bring in access to vernacular language capabilities essential for penetrating regional and rural markets. Considering the geographic spread, cultural diversity and numerous dialects within India, Rural India is better positioned to handle business processes relating to regional markets within India. 4. Government Incentives: Both the national and state governments are supporting and providing incentives for setting up Rural BPO. Some State Governments have come out with Rural BPO Policy to promote BPO in rural areas. 5. Participation from non-government organizations (NGOs): Promoting Rural BPO is more viewed as a corporate social responsibility as the same provides great opportunity to uplift the rural population. Various non-profit organizations and NGOs work with BPO companies and the local community to establish BPO in various rural areas. 6. Alignment of interest with the Indian business: Banks and Telecom companies want to penetrate the interiors of India to sell their products. Rural BPOs can provide a viable service support infrastructure for these companies Opportunities on account of Rural BPO: IT and ITES are mainly concentrated in seven cities namely, 1) Delhi & National Capital Region (NCR) 2) Kolkata 3) Chennai 4) Bangalore 5) Hyderabad 6) Mumbai & Pune (Source: TERI-NASSCOM Green ICT Report December, 2011). Growth of BPO in Tier-I locations lead to not only increase in the cost of cost of delivering services but also adds to urban migration. 78

20 Figure 3.10: Opportunities in Rural BPO NASSCOM-CRISIL report (2007) calculates that every Rupee spent by IT- ITES Sector (on domestically sourced goods and services) translates into total output of Rupees two in the economy. And for every job created in the sector, four jobs are created in the rest of the economy. Thus promoting Tier-II/Tier-III/Rural locations provide a great opportunity for not only the service providers but also the economy. According to NASSCOM (2010), about 50 rural BPOs employ 5,000 people. The 2015 projections put out by 11 rural BPOs are staggering about 1,000 centres and 150,000 employees (Source: Dun & Bradstreet, Report on BPO). If, rural BPOs flourish in this manner, they will create about lakhs jobs directly and indirectly (Source: bpmwatch.com). It is also widely seen that, leading BPO companies in India such as Infosys, Wipro, TCS and many others are hunting their talents from small cities in India to achieve cost efficiency in performing transactional jobs like data entry and form filling. According to Ernst &Young (2011), already there are more than 50 successful Rural Centers in India providing BPO Services to both domestic and global clients. Recently ASSOCHAM (2011) conducted a study on employment generation during the Financial Year 2011 covering 56 cities across India. Tier-II and Tier-III cities have cornered 38.8 per cent (total 17 cities Tier-II cities) and 23 Per cent (total 33 Tier-III cities) share of the job space respectively in the financial year IT and BPO sector, which commands 30 per cent share in total employment 79

21 generation during the Financial Year 2011, registered 27.6 Per cent of growth over the previous year. Rural areas are still home for to significant population in India. As per Census (2011), 72.2% of the total population lives in rural India. 58.7% of the rural population is literate while 79.9% of urban population is literate. As per previous census 20.5 Million people have migrated from Rural to Urban areas for employment from 1991 to Generation of employment of potential in rural areas will not only reduce the migration of population from rural to urban but also ensure faster transformation of Rural India. While the cost difference between US and Tier-I city in India is considerable, significant cost difference exists even within India between a Tier-I and Tier-II/III locations. The following table provides comparison of cost of living in three representative locations: Cost Component Mumbai V Miami(Mumbai Miami V.Madurai (Madurai lower by) Mumbai V.Madurai (Madurai lower by) Consumer Prices 61.57% 67.48% 15.37% Rent Prices 69.18% 91.62% 72.20% Restaurant Prices 69.36% 84.50% 49.40% Purchasing Power 50.95% 66.90% 32.52% (Analysis based on Data available as of 6 th April, 2013 in: // Table 3.3 Comparison of Costs of Living: Miami-US, Mumbai, India vs. Madurai, India Regardless of the global recession the telecommunication industry in India saw unforeseen growth. Indian operators added another million customers in January 2009 and million users in February 2009 taking the mobile users to million (Reuters, 2009). Breakthrough in telecommunication in India reduced the world to a global village. In a typical BPO, the services in high cost country are moved to a low cost country and therefore the opportunity to promote BPO is limited to those low countries which has the skilled labour, scale and infrastructure. Since there is always 80

22 cost differential between an urban and a rural location even in advanced countries, the concept of Rural BPO is relevant for every country. Moreover, because Rural BPO protects jobs getting moved out of the country, Rural BPO is gaining importance in high cost countries like US. Saloni Malhotra (2009) finds that rural BPO model provides cost cutting alternatives to urban clients and new sources of income and employment to the villagers, by leveraging Internet technology through a case study on a Rural BPO Company in India. While in a study by Dharmendra Mehta, et al. (2011) conducted on 200 youth aspirants in Madhya Pradesh, it is very revealing that so far the youth of rural areas have not identifying BPO as a lucrative career option Rural Development leveraging Rural BPOs: Rural BPOs benefits the village community in many ways. This includes: 1. People: Improvement in literacy, improvement in skill set & employment 2. Society: Rural empowerment, self-sufficiency, Improved Living environment, Women employment. 3. Employee: Support family needs, higher education for the youth, stay closer to family 4. Rural Economy: Stimulation of economic activity. Prevention of migration 3.15 Human Resource Development on account of Rural BPOs: As Rural BPOs can run the operations with Graduates and undergraduates, the potential employees can be trained in English proficiency, job skills and deployed in the Rural BPO centers. BPO companies employ young people for their operations; rural youth are motivated to get trained and employed without the need to migrate to urban areas. Some large companies have started providing training to potential employees before even they pass out graduation. Another feature in Rural BPO is that it can provide employment to graduate and undergraduate women and make them skilled and self-dependent. 81

23 3.16 Potential Benefits to the Government Departments/Citizens: Rural BPOs also provide an opportunity to Government to outsourcing the process work to the Rural BPO centers that can help achieving cost savings besides guaranteeing levels of quality and accuracy commitments. It will help in creating Entrepreneurs in the rural areas besides trained resources all over the State/Country. Karnatakas Atalji Janasnehi Kendras for Karnatakas e-governance (earlier known as Nemmadi) is a good example (Source: The Hindu, 26 th December 2012) Growth of Rural BPO in India: Moving BPOs to Tier-II cities is relatively easier than moving to a rural location considering the availability of infrastructure and better living environment. Convincing overseas customers even for a Tier-II city is not an easy task. They look at connectivity and access to the location, availability of the resource pool, quality of resources and infrastructure development, etc. Customers expect that they are able to visit the facility as and when required without much of an inconvenience. The development of Tier-II/Tier-III cities for BPO, as well as the growth of BPO in Rural locations, is explained in the subsequent paragraphs BPO in Tier-II/Tier-III cities in India Based on the secondary research the following are the observations with regard to the current status of Tier-II/Tier-III emerging in India: TERI-Nasscom report classifies emerging locations as under: Categories Cities Strengths Challenger Ahmedabad, Bhubaneswar, Chandigarh, Coimbatore, Indore, Jaipur, Kochi, Lucknow, Madurai, Mangalore, Nagpur, Trichy, Thiruvananthapuram, Vadodara and Visakhapatnam These cities are building an IT ecosystem to scale up the employment in the sector by promoting IT SEZs and attracting major companies 82

24 Follower Aurangabad, Bhopal, Goa, Gwalior, Hubli-Dharwar, Kanpur, Mysore, Nasik, Pondicherry, Salem, Surat and Vijayawada These cities are working towards improving the infrastructure to levels of Challenger or Leader locations, with greater focus on academic and technical institutions. Aspirant Allahabad, Dehradun, Durgapur, Gangtok, Guwahati, Ludhiana, Patna, Raipur, Ranchi, Shimla, Siliguri, Srinagar and Varanasi These cities are slowly enhancing their awareness about IT specific knowledge base, and are working towards improving infrastructure and promoting educational institutions Table 3.4 Emerging locations for BPO in India In order to get a better understanding of the readiness and current status of different cities, consulting firms do an assessment of the location under various parameters. For example, the following Tables provide the location attractiveness of Tier-II/III cities in Karnataka and Tamil Nadu from BPO perspective (Nasscom- AT Kearney (2008)): Locations in Karnataka: Parameter Bangalore Mangalore Hubli-Dharwar Mysore Leader Challenger Follower Follower Government Support 4.6 Business Environment Skill Set Assessment Infrastructure Social & Living Environment Location Attractiveness BPO Cost Advantage 14% 37% 38% 32% Table 3.5 Assessment of Locations in Karnataka with respect to ITES BPO 83

25 Locations in Tamil Nadu (with respect to ITES BPO) Parameter Chennai Coimbatore Madurai Salem Trichy Leader Challenger Challenger Follower Challenger Government Support 7.7 Business Environment Skill Set Assessment Infrastructure Social & Living Environment Location Attractiveness BPO Cost Advantage 13% 34% 21% 36% 35% Table 3.6 Assessment of Locations in Tamil Nadu with respect to ITES BPO 3.19 BPO in Villages: The secondary research done reveals that there are multiple types of Rural BPOs in India BPOs in Tier-II/Tier-III cities and BPOs that run in Villages (Village BPO). Rural BPOs service local business, Government, regional, domestic and international customers or a combination of domestic and international customers. Some of the large business organizations start Rural BPO as part of CSR initiative while a few of them move their process to rural areas for reducing cost. Some of the large service organizations partner with Rural BPOs and subcontract the work to rural areas for cost reduction. Based on the Business Model, broadly four types of Rural BPOs are prevalent in India: (1) Domestic Captive; (2) Service Provider operate in Villages using (Hub and Spoke Model); (3) Large Service Provider operate with Smaller Service operate in Rural areas (4) e-governance Service centres through Rural BPOs. DesiCrew, Uday Foundation, Comat, Source Pilani, B2R, Dristee, Harva, HDFC Rural BPO Center at Tirupati, FOSTeRA, Source For Change, Rural Shores, Atalji Janasnehi Kendras for Karnatakas e-governance (earlier known as Nemmadi) are some of the Rural BPOs operating in India. 84

26 Rural BPO - Growth Projections (By ) Current Projection Companies Customers Centres Employees Centres Employees ADF NA NA B2R ,000 DesiCrew ,000 Drishtee NA NA egramit ,000 Harva ,000 NextWealth NA ,000 RuralShores ,000 Source For Change ,000 SourcePilani Tata Group 4 NA ,000 Total 26 4, ,500 Table 3.7 Rural BPO - Growth Projections (By ) (Source: posted in Aug 12,2010) It is also observed that leading Indian Business Process Service providers (such as Genpact, Infosys, Wipro, Aegis) have created centers in rural areas or formed partnerships with rural BPOs. Genpact, the $1.1 billion global BPO major, has given out its internal finance and accounts work to RuralShores, one of the largest rural BPOs. Mainstream BPOs like Infosys BPO, Wipro BPO and Aditya Birla Minacs are looking further to outsource some of the basic work they get like digitising forms, data entry, cataloguing books or ensuring the accuracy of website content. Bharti Airtel and Aegis are running pilots. According to NASSCOM, (as of 2010) there are about 50 rural BPOs, employing about 5,000. By 2015, this is expected to go up to 150,000! 85

27 3.20 Business Model of BPO in Rural location: Figure 3.11: Typical Rural BPO Business Model (Source: Dristee Research Report) The typical rural delivery model is a network of small centres strategically selected across rural and semi-urban locations. Each centre is run with a seat facility. Some rural BPOs do shifts-working to service global clients. Locations of the centres are identified based on the population. Training is given to the people so that they can be employed in operations. The benefits of this model include: 1. Creation of computer based knowledge related jobs in communities where there are no similar jobs. 2. Lower attrition rates for the industry, as people are less inclined to leave their jobs given the improved quality of life and option of staying with their families. 3. Lower costs for clients as overheads at these centres are far cheaper as compared to the urban counterparts Infrastructure requirements of Rural BPO Technology and Telecommunications have played a vital role for Rural BPOs in taking jobs and operating from rural locations. Telecom services providers such as BSNL, Reliance, etc. have been able to extend reliable connectivity via internet 86

28 services, leased line circuits in rural areas. Other technology components include the backend network gear that includes the routers, switches, etc. for LAN connectivity to the WAN. The WAN or Wide Area Network consists of state of high speed leased lines, internet leased lines which has built in benefits such as cost savings, Quality of Service, improved performance and ease of augmentation. Redundant WAN links are also deployed to ensure high availability and continuity of service should there be any failure in the primary link (Source: Ruralshores.com) Training in Rural BPO: Employable graduates are very low in rural locations. Training plays a crucial role in converting the rural graduates and undergraduates as employee in rural BPO. Typically three levels training are provided to all the employees: General Training: This is primarily the induction training for 6-8 weeks. This training is also handled by specialist firms to make it effective and decrease the training duration. Process Training: Process training is specific to customers business processes that are outsourced and typically this training happens over 2-4 weeks. On the Job Training: Depending on training needs, changes in the process, changes in the team, etc. training is provided to employees. Adherence to Standard Operating Procedure laid out is important for every employee. In addition, as a customer stipulates the service levels, the productivity, accuracy and timeliness are regularly monitored. Training if any, needed to improve the productivity and accuracy levels is also provided on an on-going basis Profile of a Rural BPO Company: For better understanding of a Rural BPO, profile of a leading Rural BPO Service provider in India is given below: RuralShores is one of the Rural BPO Companies having its BPO units in different villages across India. The following Table provides the rural locations, size, and % of women employed and the how each Rural BPO unit is managed. 87

29 Source: RuralShores by Mukherji, IIM-Bangalore (2012) Table 3.8 Rural BPO Units of RuralShores 3.24 Challenges in running BPOs in Tier-II, Tier-III & Rural Locations: The unique nature of BPO work like Data Security, Service Level commitments which require uninterrupted service, etc. poses some challenges when it is delivered in a location other than the Tier-I cities. As stated earlier, the key challenge is to convince the global clients that work can be done and delivered more efficiently by a BPO unit located in a rural location. Based on secondary research on Rural BPO organizations such as Comat, Desicrew, SourcePilani, Dristee, SourceforChange, Rural Sources, Uday Foundation, Harva, HDFC Bank Processing Center, it is found that while there is a good case for promoting rural BPOs, there are quite a few challenges in running a Rural BPOs. Some of the key challenges are discussed below: 88

30 1. Availability of Power & Infrastructure According to Junjunwala (2009), the lead for the Telecommunications and Computer Networks Group (TeNeT) at IIT Madras, BPOs can use low-power system and even the existing power infrastructure can be used, provided there is a very good power backup system in place. Rural BPOs can also use decentralised energy generation, alternative energy generation, etc. Long and extended power cuts from a few hours on the lower side to a few days on the extreme side are taken for granted in Indian villages. It often limits the variety of services that the BPO could offer. 2. Support for business: It is difficult to persuade the software vendors and the maintenance engineers to provide on-going service and support in remote places like Nellore and Tirupati. 3. Skilled Resources Availability, Sustainability & Scalability: Skilled Resource availability, Retention and Training has been a major challenge in Rural BPO, and they have to take support from near-by cities. The size of the available skilled labour pool for rural BPOs is limited. Both sustainability and scalability remains a challenge. 4. Access to funding: Most of the Rural BPOs who have seen some success so far now are being supported by large Indian corporations or have managed to receive funding through venture capitalists based on the social impact that the business could cause. A strong business case with scalability and growth prospects remains unclear and uncertain. It may be noted that even in some Tier-II cities, the IT/BPO industries have challenges. For example, Coimbatore, a Tier-II City and the second IT/BPO destination in Tamil Nadu for more than five years. Still, in a meeting organized by NASSCOM in April 2011, the IT/BPO companies in Coimbatore expressed that they face challenges. It includes the need for better roads, air and rail connectivity, talent recruitment, vendor capability for supporting services, cost competitiveness and 89

31 branding (Source: THE HINDU, April 26, 2011). Availability of robust infrastructure is critical for BPO whether it is in Tier-II city or village. Dr. A.P.J. Abdul Kalam (2012), the former President of India, in his book Vision 2020, argues the following connectivity for the cluster of villages: i. Physical Connectivity (roads, transport facilities, etc.) ii. Economic Connectivity (Banks, Commercial organizations, etc.) iii. Knowledge Connectivity (School, colleges, vocational education, etc.) iv. Societal Connectivity (Hospital, recreational facilities, place of worship, etc.) and v. Electronic Connectivity (Phone, internet, cable, etc.) Another important factor for the sustainability of Rural BPOs is generation of efficiency, which is possible only through consolidation of services, size, scale and specialization. It should be kept in mind even from the early stages of setting up the Rural BPOs Role of NASSCOM in promoting Rural BPOs in India: NASSCOM, the chamber of commerce and the 'voice' of the Indian IT software and services industry launched the pilot of its NASSCOM Assessment of Competence (NAC) programme in August The programme is aimed at the potential employees of the booming BPO industry and is an industry standard assessment and certification programme that aims to ensure the transformation of a 'trainable' workforce into an 'employable workforce.' The programme tests the aptitude of a candidate on different skill sets and includes listening and keyboard skills, verbal ability, spoken English, comprehension and writing ability, office software usage, numerical and analytical skills and concentration and accuracy. The NASSCOM Foundations working to study and grow the eco-system and ensuring that growth or Rural BPO, which is termed as Rural BPO 2.0 Impact Sourcing, is profit-driven. Impact Sourcing, is aimed at reducing costs by around 40 per cent compared to typical urban BPOs and bringing down attrition from per cent to 8-90