Aron: We often hear that the off-shoring of processes is not about lower wage rates alone. Many businesses say that they are surprised by the quality of talent that is attracted to jobs that may be considered dead-end jobs in the advanced economies. I hear this, for instance, in the context of call-center operations. What is the difference in education levels between call-center workers in India and the U.S.? Are statistics available about the average call-center worker’s education in India?
Karnik: In India, more than 99% of all call center workers are college graduates. In the U.S., there are no minimum education qualification requirements to work in a call center.
Aron: Some groups that advocate labor interests claim that many of these operations are data sweat shops – i.e., that workers are paid substantially less than the average income levels for equivalent levels of occupations in the country. As a result, they argue, these workers are quite badly off and they work for bare minimum wages. Can you give an estimate of the average salary of a call-center worker in India, and then tell us where this would place her or him in an income gradient – compared to the country’s per capita income?
Karnik: According to a NASSCOM-Hewitt Associates survey, the average salary of a call center worker in India is $180 a month. This is five times the country’s per capita income. For a fresh college graduate, a call center job pays about 2.5 times as much as other job openings.
Aron: Several commentators have said that call-center work spreads, (or the difference between what it costs to operate a call-center in different regions) have declined for companies transferring work to India as costs are beginning to catch up with the West. Some observers forecast that in 24 to 36 months, regions such as the Caribbean, parts of China, North Africa, etc. will be able to match any advantage that India’s better-trained workforce enjoys will be neutralized by the big cost differences. They predict that call center growth will stop except in niche segments like technology support in the next three years or so. What are your thoughts?
Karnik: There are a number of attractive destinations for call center operations – many of them have people with high skills and comparable infrastructure. However, India’s single-biggest comparative advantage is the scalability of the country’s talent pool. To illustrate, you can set up a call center with 100 employees anywhere in the world. However, if you need to scale up to 1,000 people in six months, and then to 5,000 in two years, you could do that only in India. This is attributed to the sheer size of the talent pool in India – more than 2 million graduates every year. In addition, several benchmarking studies have shown that India is the leader in quality, productivity and customer empathy.
Aron: Going beyond call centers, if India wants to attract higher-end process execution businesses (either in the form of captives or as BPO plays) the physical infrastructure and the skill levels are going to have to play an important role. Let us begin with the pipe through which the business flows — bandwidth. Can you tell us what is the extent of investment by private firms in building up India’s telecom facilities? Specifically, what does bandwidth cost in India?
Karnik: NASSCOM estimates suggest that private firms have spent close to $4 billion in setting up a world class, large and spatially dispersed telecom infrastructure in India – this includes connectivity by fiber optic cable and satellite. The cost of an international half-circuit (India-U.S.) is approximately US$1,900 for a 2 Mbps link.
Aron: While on the subject of connectivity, let me ask a follow-up question. Most of the BPO action in India is concentrated in Hyderabad, Bangalore, Chennai, Delhi and perhaps, Bombay. If businesses are disproportionately attracted to a region, that may result in driving up real-estate costs and related scarce resources, while also making the labor market less liquid. Do you see the second-tier cities such as Mysore, Chandigarh, Vijayawada, Cochin, Trivandrum, Trichy, Madurai, Coimbatore, Ahemdabad, Indore, Pune or Nagpur, playing a role in attracting BPO businesses? What will be India’s telecom infrastructure in the next 24 months in the context of these cities? What is the cost of connectivity in these cities? How easy is it to get connected to these cities?
Karnik: The publicly owned BSNL (Bharat Sanchar Nigam Limited), and the privately owned Reliance Infocomm and Bharti Telecom are all investing in a nationwide rollout plan for telecom connectivity. It has to be remembered that the state-owned STPI (Software Technology Parks of India) has set up software parks in many second-tier cities such as Mysore, Chandigarh, Cochin, Ahmedabad, Pune, and Nagpur, and STPI offers international connectivity via satellite at comparable costs. In addition, these cities have a large and growing pool of talented graduates. A number of large BPO companies are also expanding in second-tier cities. It is likely that the BPO industry will become more geographically dispersed in India and emerge strong in these cities too.
Aron: Are there certification programs for various BPO skill types in India? To what extent have efforts been made to train and test information workers in the skills that are needed in this industry?
Karnik: BPO units in India and software units in India are among the world leaders in quality and skill standards. To illustrate, 48 of the 60 global CMM Level 5 firms (established by Carnegie Mellon University) are in India. There is considerable adoption of standards such as Six Sigma, COPC (for call centers) and ISO 900x. Almost every significant company invests in training its workers – most employees have to undergo mandatory training of three to four weeks every year. In addition, the education sector in India is highly adaptive with growing private sector participation and it offers a number of courses not only in software engineering but also in customer service, accounting and legal services.
Aron: A key driver of success in scaling up for BPO firms will be their ability to attract and train talented middle managers. My research based on a survey of Indian process execution centers seems to suggest that the availability of senior and middle management talent will be a key issue in determining whether or not firms can grow in scale and scope of activity beyond the next three or four years.
Where are the managers who will manage at senior ranks of this industry being trained today? To what extent do BPO service providers such as Spectramind, Daksh, eServe etc. recruit from the top b-schools such as the various Indian Institutes of Management or the Indian School of Business? Aren’t multinational firms such as Unilever and consulting companies still the hottest employers on these campuses?
Karnik: Large BPO service providers are increasingly recruiting from business schools and laterally from other industries. Increasingly, the industry is attracting talented middle and senior management from other sectors of the economy such as retail, insurance, banking, airlines, hotels, and manufacturing.
Aron: What has been the revenue impact of services outsourcing into India? Can you share dollar volume estimates of this trend?
Karnik: The software services and BPO services export industry in India has grown its revenues from $6.2 billion in 2000 to $7.7 billion in 2001 and $9.5 billion in 2002. In 2003, NASSCOM estimates the industry will grow its revenues to $12 billion.
Aron: Indian governmental policies continue to irk foreign investors. I have heard many business leaders comment that with rare exceptions, doing business in India still requires cutting through bureaucratic tangles and meaningless regulations. They agree that things are better than they were in the past, but the regulatory regime is nevertheless nowhere as investor friendly as Singapore, Mauritius, Chile, etc. What are your thoughts?
Karnik: The software and BPO industry in India is arguably the most investor-friendly. There are minimum clearances required and there is single window clearance at the STPI. MNC units are being set up rapidly – one every two days. This surely highlights the investor-friendly regime for setting up software or BPO operations in India.