Monday, June 10, 2002		Article

For outsourcing, companies’ destination is India

FOR once, tech gurus may be guilty of underplaying how much the Internet will change your life.

Especially, if you live in a moderate to high-income country, are of modest to moderate intelligence and work at a service industry job that can be done more cheaply - and possibly better - by some bright eager beaver in Bangalore.

Or Chennai, Delhi, Mumbai - anywhere in India to which globally active banks, insurance companies, airlines or credit card companies shifts their most labour-intensive operations.

The telecommunications revolution has made it possible for functions such as insurance claims processing, accounting, order taking or customer support to be done from anywhere.

The economics of global competition will ensure they are.

Tech researcher Gartner recently forecast that by December more than 80 per cent of multinationals will use IT outsourcing to save money, overcome skills shortages or increase flexibility.

Without a doubt, much of that work is headed to India.

"Today India is the dominant player, with a greater than $6.2 billion (IT service) export industry, more than 900 software export firms and approximately 415,000 English-literate IT professionals," the report said.

Gartner Dataquest forecasts the market for this type of service, which the industry calls global business process outsourcing, (BPO), will grow to $ 543 billion in 2004, at a compound annual growth rate of 21 per cent.

Listed Indian companies, such as Infosys Technologies and Wipro Ltd., and by foreign multinationals themselves, are setting up BPO operations in India.

"Companies like GE, American Express and British Airways have successfully demonstrated the benefits of the model, with total savings of a few hundred million dollars between them," Kandathil Jacob, a visiting professor at the management school at Bombay's Indian Institute of Technology (IIT), wrote recently.

Citibank, Dell Computers, Oracle and Lufthansa are among the other firms that have set up service centres in India, staffed by college graduates delighted to land a job paying $ 204-$ 245 a month.

The stream of service industry jobs flowing to India should increase now that its telecom market is deregulated, cutting charges in the one area where the nation - as a remote service centre - compared poorly internationally.

Its phone rates were among the world's highest. A call from India to the USA costs nearly a dollar a minute, about three times what a caller there paid to ring India.

In April, India cut rates for conventional phone services overnight by deregulating its international phone market.

The government also authorised Internet telephony or Voice over the Internet Protocol (VoIP), which has greater ramifications for the international labour market.

The reason is simple.

"Soft switches deliver distance-insensitive services. Long distance goes away as a cost factor," said Arnold Englander, vice president for product planning and strategy at VocalTec Communications Ltd., a Jerusalem-based leader in the VoIP software industry.

Englander told a recent seminar on VoIP that with a Net-based phone system, an employee in Delhi would dial the same number of digits - maybe four -to ring a colleague in the same building or in Bonn.

"The cost, the access, the sound, would be the same."

As Englander noted, with distance no longer a technical or cost factor, decisions where to place call centres can be made entirely on other grounds.

Such as where wages and real estate costs are lowest. New Delhi was recently rated the world's second cheapest place to live, among 134 cities surveyed by the Economist Intelligence Unit. Bombay ranked 126th.

The cost of setting up operations can be cut further by renting or leasing space, computers and telecoms gear.

Some business groups estimate a large multinational can typically recoup within a month the cost of setting up 10,000-strong operations in India.

And the threat of disorder, posed by tension with neighbouring Pakistan and religious riots in the western state of Gujarat, does not outweigh the savings gained by transferring big chunks of back office and call centre operations to India.

VoIP now accounts for just 5 per cent of total global voice business, Amitabh Singhal, secretary of the Internet Service Providers' Association of India said.

"Calls are placed everyday that people are not even aware are being carried over the Internet," Englander said.

Singhal said although almost all 160 Internet Service Providers (ISPs) operating in India were losing money, only 15 to 20 had so far applied to begin offering Internet telephony.

"A year from now," he added, "there won't be an ISP provider not offering Internet telephony."

Net 4 India Ltd., one of the first to do so, shows the appeal of the cut-rate service in a price conscious country like India.

Company director Desi Valli said the service was signing up new users at a rate of one every four minutes.

Still, Singhal forecast VoIP would grab only about 10 per cent of India's $1.5 billion a year international call market.

Partly that's because so few Indians have access to a personal computer and the Net, with just seven million logged on, according to the International Telecommunications Union.

More problematic are government curbs on Internet telephony. One can use VoIP to call either a phone or PC abroad, making the technology accessible to the IT-enabled services industry.

But PC-to-phone calls are barred in India.

"The intention right now is to make it very restrictive," Supreme Court advocate Pavan Duggal told the VoIP India 2002 seminar.

If you're an ordinary office worker in the US, European or upper income Asian nation, your job could depend on how long those restrictions last.

— Reuters