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India Faces Hard Times as Contact Centers Move Elsewhere

April 25, 2014

A new report by the Associated Chambers of Commerce and Industry of India (ASSOCHAM) and consulting firm KPMG says that India is losing voice and call center business on a daily basis to competitors. The report cites as reasons for the losses are the lack of expansion, innovation, and consolidation.

The big headline from the report is that India is currently losing about 70 percent of all incremental voice and call center business to competitors like Philippines and Eastern Europe. The authors state that unless India’s domestic BPO (business process outsourcing) industry diversifies the delivery footprint to take advantage of low-cost centers, competitors will further consolidate their position.

The numbers are stark, “IT-BPO companies could reduce the total operating costs by 20-30 per cent by moving to a low-cost city within India with cost differential at around 10-15 per cent for non-voice processes and upwards of 20 per cent for voice processes,” says the report.

“It is estimated that in the ongoing decade India might lose about $30 billion in terms of foreign exchange earnings to Philippines which has become the top destination for Indian investors, thus the need to reduce costs and make operations leaner is increasingly becoming significant across the BPO industry,” said Mr D.S. Rawat, secretary general of ASSOCHAM while releasing the findings of the study.

He went on to note that, “Employees in Philippine call centers speak English fluently with a neutral accent which is what customers look for and that is something missing in Indian accents and that is a prime reason why BPO business is thriving in that country…Cultural proximity to the US together with availability of talented manpower are key reasons as to why BPO companies prefer expanding their operations in Philippines.”

The ASSOCHAM-KPMG study did say there was a solution to mitigate some of the impacts of BPO migration to other countries.  They recommend expansion of non-English BPOs in Tier-2 and Tier-3 centers where labor and transportation costs are lower than in major India cities and where churn rates of employees are also lower. The authors do acknowledge that this must be a long-term approach since training will be required along with significant upgrades to the communications infrastructures in these areas. However, they see the investment as critical to the continued growth of India’s economy and keeping its status as a major supplier of BPO services.

Edited by Peter Bernstein