Intelenet marketing head Sandeep Aggarwal firmly believes that BPO in India will be the next enduring revolution and certainly not a bubble
Mumbai: Intelenet Global Services, one of the first business process outsourcing (BPO) companies to set up shop in India, is a 50:50 joint venture between Tata Consultancy Services (TCS) and HDFC. The company provides BPO solutions to companies in the US, Canada and the UK.
Intelenet's illustrious lineage enables it to deliver scaleable infrastructure and ensure business continuity aided by its rock-solid financial strength. TCS brings to Intelenet an immense and richly varied experience in executing and maintaining mission-critical global projects. TCS's technology implementation skills are unparalleled, and its know-how in domain capabilities and project management expertise is indispensable.
HDFC is an all-embracing financial portal in itself with indisputable competencies in banking, insurance, mutual funds and asset management in addition to its core strengths, mortgage and properties. It contributes to Intelenet its experience in customer management processes, back-office operations and property management. Together TCS and HDFC provide Intelenet the tools and resources essential for superlative customer service in the respective business domains.
Intelenet offers a range of IT-enabled services which include contact-centres, transaction processing, accounting services and technical support in various verticals like banking, financial, insurance, retail, media and airlines. Its dozen clients include Household Financials (USA), JP Morgan and Standard Life Health Care, UK. Its clients are spread across the US (seven) and the UK (five).
Intelenet's 2000-seat, state-of-the-art voice and data facility at Malad, in north-central Mumbai, is ready. Its balance 800 seats are spread out between Mahape, Mumbai (450), Tidel Park, Chennai (300), and Missoula, Montana, USA (50). The company plans to treble its workforce from the present 1,600 to 2000 by end-2003 and to 5,000 by early 2006. The total investment in all its facilities has already crossed Rs 130 crore.
Sandeep Aggarwal, the chief marketing officer of Intelenet, is one person responsible for the company's growth. With more than 12 years of business development and marketing experience with multinationals like Ford and Fiat, over the last three experiences he has been a part of the core team involved from the start-up to the growth phase.
Aggarwal has strongly promoted the 'Outsource to India' paradigm in his entire career span and has been in the BPO space for the last four years. He brings to the table significant market, customer and operations experience in delivering quality outsourcing operations from India and speaks with conviction about the future prospects of Intelenet in the BPO sector. Excerpts from an interview:
Do you think BPO in India will become another bubble like dotcom? After all there is an intense competition, creating a downward spiral leading to unviable rates?
What is happening to BPO in India is definitely not a bubble. Prices are falling but there is still a decent margin. The organisations that are outsourcing to India now from abroad are truly large corporates. They need BPO companies in India who can scale up their operations very rapidly - with the additional infrastructure already in place.
They will never give a contract to small, new operator just because of lower rates. Another important factor is financial strength. A BPO company in India should be able to invest whatever it takes to scale up or customise its infrastructure in order to win large contracts. Only the top 20 BPO companies in India will finally be able to do this as the contracts get bigger and bigger.
Does that mean that smaller competitors will close down?
Yes, or they will be merged with the bigger survivors. Out of more than 500 small set-ups, almost 80 per cent will not be able to survive on their own. Many of them have converted existing space into call centres, mainly for telemarketing to the US. But a new law is to be passed in the US that will severely restrict incoming telemarketing calls to the US.
From October 2003, the FTC [Federal Trade Commission] and many US states are scheduled to begin enforcing the national 'do not call' provisions of the Amended Telemarketing Sales Rule. Violators will be subject to a fine of up to $11,000 per violation. Consumers listing themselves in a national 'do not call' registry should begin to receive fewer unwanted telemarketing calls approximately three months after they register. This could be a body blow for all telemarketing companies as their major market is the US. Some small telemarketing outfits have already started shutting shop.
Other such call-centres may have received VC [venture capital] funding. The basic concept of a VC-funded enterprise is to eventually sell out. Therefore, such ventures will always be on the block, preferably through an IPO [initial public offering]. But with so many companies in the same boat and a lead time of at least one year required before an IPO, one cannot predict market conditions so much in advance. Therefore, it becomes very difficult for VCs to bail out.
In addition, the parent funds for VCs have dried up, so they find it almost impossible to pump in further financial support for struggling call-centre ventures. Most VCs in India have been reduced to two-person outfits, monitoring their existing investments.
So how many smaller companies do you think you will buy out?
We will grow organically. We have no plans of expanding through mergers or acquisitions. We have built a huge, world-class facility so that it is very apparent to our existing and prospective clients that we are in this business for the long run. For companies wanting to be taken over it's difficult to get a decent enough valuation at present. So it will be nothing but a distress sale for them.
How can you be so confident of long-term growth when there is so much growing competition from countries like the Philippines, Malaysia, China, Russia, Ireland, and Vietnam?
We are not at all worried about such competition. No other country has such a huge talent pool. The total qualified talent pool in the Philippines, for example, may be around 40,000 - equal to just one of the smaller cities in India like Pune or Mysore, which by the way, have not been fully tapped as yet. China is more than 10 years away from being seriously competitive. What is critically important to all major customers, who are usually giant, global corporations, is the ability to rapidly scale up BPO operations. This is as important, if not more, than low rates.
This is possible, currently, only in India. We can go from 100 seats to 1,000 seats in a few months and to 5,000 seats in a year, if required, without making much of a dent in the pool of available talent. No other low-cost country is currently able to do this. This comparative advantage will remain with us for years because we produce over 2 million highly qualified English-speaking graduates every year. This is why BPO in India will be the next enduring revolution and certainly not a bubble.
But is it true that the current hourly rates that you are paid are not remunerative and you are also suffering from high attrition rates?
Well, attrition is a problem but we are addressing it. Many new BPO companies are being set up on a huge scale and some of them are willing to attract trained talent away from us by offering more. We just have to keep on training new talent and perhaps offer them comfortable shared accommodation. We are also considering sourcing employees from the retired pool, although we have not started yet.
Another possibility is tapping smaller cities. But what is important is that talent is freely available and those who like this type of work and like us will stay on. The current average rates are $10-12 per hour for voice and $8-9 per hour for back-office work. These rates may go down by 5-to-10 % over the next two years, but at these rates it is still viable for us.
Why have you grown so slowly in spite of being one of the pioneers with very strong financial backing?
As I said earlier we will grow organically but solidly. We have already broken even and hope to see our turnover crossing Rs 200 crore by end-2003.
What else do you see in the future for BPO services from India?
We should build on our current expertise to provide core-processing services globally by going up the value chain. For the sector as a whole, I also see the possibility of going down the value chain by combining manpower with BPO processing and offering comprehensive services globally, including onsite manpower such as in the housekeeping sector. This could be especially viable in affluent countries.