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The near-shore advantage in BPO
Setting up contact centres in Mexico or
Canada may seem counterproductive, but for Indian players in the
BPO/call centre space this move has some significant advantages,
says Prashant L Rao
Indian ITES players like to talk about the
offshore advantage but there’s a new tune whistling in the
BPO breeze and it’s called near-shore.
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| Alok Sethi says MsourcE is going beyond
offering just cost-competitiveness, as higher value work brings
in higher returns |
Offshore isn’t
enough
Nasscom states: “As the Indian ITES-BPO industry matures there
is a need to adopt global delivery models and therefore Indian vendors
will look at setting up centres in other geographies. The bulk of
their presence will continue to rest in India due to the obvious
cost, quality and productivity advantage. However, as part of their
de-risking strategy and business continuity or disaster management
plans, Indian ITES players will look at setting up a presence in
other lucrative locations. This will be good for us in the long
term as it will help the Indian ITES industry expand its presence
globally.”
First mover advantage
MsourcE has been the fastest off the starting blocks. The company’s
third and latest centre (the first two are in Bangalore and Pune
respectively) is in Tijuana, Mexico. Alok Sethi, chief operating
officer, MsourcE India says, “Our Mexican operation caters
to the large Hispanic population in the US.” MsourcE uses its
Mexican contact centre to cater to its US clients who have a substantial
chunk of Hispanic (Spanish-speaking) customers. Another key advantage
lies in having a backup location in case of an Indo-Pak war or if
some other event of that magnitude disrupts operations from India.
The company kicked off operations in Mexico a few months back with
an initial investment of $1 million. The centre services the requirements
of one of MsourcE’s large financial services clients in the
US. “It is natural to serve the Spanish-speaking customers
of our clients in Spanish. That, and its proximity to the US, made
Mexico a natural choice,” adds Sethi.
The company expects to use the experience
gained from its Mexican operations as it expands to other parts
of the globe.
There’s
always an alternative
Abhay Chauhan, director for Business Development at Transworks says,
“We do not have a centre in either Mexico or Canada and are
not looking at setting up one in the immediate future. However,
we are in discussions with a couple of service providers in both
these locations to set up some kind of a reciprocal arrangement.”
Transworks is negotiating reciprocal agreements
due to a combination of factors—some of their clients have
Hispanic customers and it wants to have a backup for its centres
in India.
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| Pawan Kumar says that establishing offshore
centres in Canada or Mexico is not very cost-effective, and
manpower in those countries does not that match that of India
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“Infowavz has global partnerships with
leading international BPO players. These partnerships help us provide
multi-location and multi-lingual services to global clients and
let us offer strong, multi-country and multi-site disaster recovery
and business continuity solutions from over 75 global locations;
including onshore centres (UK, US), near-shore centres (Jamaica,
Canada, Mexico, Ireland) and offshore centres (India, Philippines),”
says Zia Shiekh, CEO of Infowavz, a Mumbai-based BPO company.
Infowavz wants to stick to what it does
best, deliver from India, allowing others with core competencies
in their markets to deliver from there. “Rather than have Indian
companies trying to establish and manage centres outside India,
the better option would be for them to tie up with strong local
and international partners in such geographies, who understand their
local market best and would be able to offer much stronger and cost-effective
solutions from their countries. Our clients don’t need to worry
about multiple contracts and multiple point-of-contacts. They talk
to our relationship managers, who are held responsible for end-to-end
service delivery and quality, cutting across various geographies,”
adds Shiekh.
In addition to the partnership route, there
is a third way for Indian ITES companies to gain near-shore capabilities—acquisition.
Several Indian ITES majors are reported to be eyeing eTelecare,
a Philippine-based call centre company, as an acquisition prospect.
If a deal materialises, it could be the first such M&A deal
where a foreign call centre is taken over by an Indian player. While
Philippines is still an offshore location, nothing stops Indian
ITES companies from acquiring near-shore centres.
Final word
Indian ITES players will have to look at establishing their own
near-shore centres or tie up with call centre companies in those
geographies. This won’t be for gaining a cost advantage. “Establishing
near-shore centres won’t really help on the cost front as near
shore countries like Mexico and Canada have very little cost difference
and do not have the quality of manpower to match that of India,”
says Pawan Kumar, founder of vMoksha.
What Indian ITES companies will gain is
the ability to offer services in Spanish and to have a fallback
location in case of a disaster. Hispanics comprise a key demographic
in the United States (See box: Hispanics, the untapped customer)
and as the US continues to provide the bulk of ITES work, it will
be crucial for Indian players to offer Spanish language services
to differentiate themselves from the pack and take advantage of
a growing segment in the US.
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While a lot of ITES work is flowing offshore to India and
other locations, there’s still a niche for near-shore.
MNCs such as IBM, HP and EDS are positioning themselves in
the global outsourcing markets as players with the ability
to serve customers from locations across the globe, including
India, Mexico and Brazil. The latter two near-shore options
give MNCs an edge over most Indian players who are still concentrating
purely on the offshore model. With MNCs ramping up their Indian
operations, the cost-advantages of offshore are melting away.
Ironically, it was the very success of Indian software and
later ITES players in undercutting MNCs by using the offshore
model that has led to this full-throated response. While ITES
outsourcing to India is projected to grow by 65 percent this
year (Source: Giga), the percentage of that pie going to Indian
subsidiaries of MNCs is bound to rise substantially in the
next couple of years considering their rapid ramp-up in the
country.
Mexico is an attractive near-shore option for North American
companies—it’s cheaper than the US and the government
is keen on the software industry. Best of all, from the US
viewpoint, Mexico is a signatory to NAFTA (North American
Free Trade Agreement).
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| Hispanics are the fastest growing demographic
segment in the US. As per US census data, the most recent available
being for 2000, 32.8 million Latinos resided in the US, representing
12 percent of the US population, of whom 66.1 percent are of
Mexican origin. As a class, they are getting richer and companies
such as Bank of America are riding this boom to boost their
topline and their bottomline. Hispanics are an untapped market
for banking products and they spend substantial amounts of money
on banking. The banks who want to serve them are likely candidates
for outsourcing to Indian ITES players. The catch is that Indian
players will have to offer services in Spanish. That’s
where near-shore call centres in Mexico start making solid economic
sense. |
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As if the rapid ramp-up of MNCs in India wasn’t bad
enough, billing rates in the ITES business are under heavy
pressure. According to Gartner, BPO rates have fallen by 40-50
percent in the past year. ITES appears to be going through
the same cycle that the software industry went through—only
it’s going through it 10 times faster. While the software
industry enjoyed robust growth without any serious challenges
for over a decade, ITES players find themselves going toe-to-toe
with MNC biggies in just a couple of years. Billing rates
are in the range of $10-12 per agent/per seat with some deals
being done at a third less. This is expected to lead to smaller
players getting acquired by the big fish. It’s not too
far-fetched to expect that MNCs will start picking up Indian
call centres for a song in the coming year. The coming consolidation
is expected to result in prices stabilising as cut-throat
competition declines with a reduction in the number of players
chasing the same pie.
The silver lining here is that some of India’s ITES
companies have realised that it’s not enough to compete
on cost. MsourcE, for instance, undertakes transaction processing
for its clients. “We enter transactions directly into
the client’s mainframe,” claims Sethi of MsourcE.
In an example of moving up the chain, MsourcE converted and
collated paper manuals to a DVD format for an auto repair
chain. High value work gets higher returns and that’s
not going to change. All it needs is a change in mindset from
competing purely on the basis of cost to competing on quality.
Gartner believes that transaction process outsourcing will
grow. Already, companies such as Ernst & Young do corporate
tax accounts of American companies in India, capitalising
on the GAAP aware accounting talent in the country. High-end
BPO has a bright future.
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