“Do you really think women can work on computers?” Men in Bagar genuinely wanted to know the answer to that question when Source for Change — an initiative of the Mumbai-based Piramal Foundation — set up an all-women BPO (business process outsourcing) center in this small village in India’s Rajasthan state. The skepticism didn’t end even after Source for Change selected 10 women from 25 applicants in August 2007. Wary men would accompany their wives or daughters to the training center and then wait around until they were ready to return home.

More than two years later, men still drop in unannounced at the remodeled house that serves as Source for Change’s combined headquarters and training center. But these are not the same suspicious husbands and fathers. Instead, they are individuals hoping to find jobs for the women in their families. “They realized that we made available the two most valued symbols of social status here: English and computers,” says Karthik Raman, head of business development for Source for Change. “Some of the women who work here earn more than the men in their families. They now have a voice at the table.”

With state governments and industry supporting the cause, it is clear that village-level BPO is here to stay. No official numbers are available yet — the National Association of Software and Services Companies (Nasscom) is collecting data now — but observers agree that more than 100 such units are likely operating around India, most of them less than three years old.

It’s a positive development, according to Raju Bhatnagar, vice president in charge of BPOs and government relations at Nasscom. “There is tremendous opportunity for non-urban BPOs in domestic voice [i.e., call centers] and non-voice businesses, and international non-voice work.” Nasscom prefers the term “non-urban” to “village” or “rural” because prospective clients may associate rural with “backward.” “[It is] semantics, I know, but the change in terminology does seem to help people get over that mind-set,” Bhatnagar says.

Some BPO centers are run from non-air-conditioned buildings that double as schools and marriage halls. Their employees sit on plastic, stackable chairs and rush home to milk the cows when their shifts end. Others are run from modern offices where biometric IDs are required for entry and team leaders hold post-graduate degrees. Their common element is their location far from the big cities, in semi-urban and rural communities such as Ethakota in Andhra Pradesh state, Munnar in Kerala state and Shiggaon in Karnataka state. More than half the employees are women, and all employees are from 19 to 35 years old.

The Bottom Line: Cost

Why are non-urban BPOs on the rise? “To ease some of the pain points that exist in the domestic outsourcing business around cost and reach,” says Gaurav Gupta, principal and India head of the Everest Group consultancy.

Over the last few years, India’s US$14 billion BPO industry seemed to have been losing a battle with rising expenses. Real estate prices were spiraling out of control. Off-the-charts attrition meant increases not only in salaries but also in training and recruitment costs. To curb people costs, many companies cast their recruiting nets further into the hinterland, but found that fewer than one in three short-listed candidates would sign on. The costs of city living did not make the move worth it for many, while family ties held back others. Raman Roy, chairman and managing director of BPO firm Quattro and a veteran industry leader, points out that BPO recruitment has changed over the last few years. “About 60% to 70% happens in smaller towns, where the BPO doesn’t have a presence. And of those selected, just 20% to 27% accept; the rest don’t move for [a variety of] reasons.”

All of this is bad news for an industry whose existence relies on cost-effectiveness. “The main drivers of this industry have been higher efficiency, infrastructural support and available skill-sets,” says Rajanish Dass, professor of information systems and strategic management at the Indian Institute of Management Ahmedabad (IIMA). “But the bottom line has been the cost savings that a BPO brings. On average, the cost savings incurred by deploying a BPO is 40% to 50% compared to the originating companies.” By that token, organizations with an eye on the cost-benefit ratio will not hesitate to switch operators or even countries if expenses reach a tipping point.

Dass notes that BPO companies have the option of evolving into knowledge-process outsourcing units, tackling specialized, high-end jobs while shifting low-margin, low-skill data entry projects to rural BPO centers. And by moving jobs to rural areas, companies and clients can take advantage of significantly reduced operating costs. Land prices in India’s interior are a small fraction of prices in Mumbai and Bangalore, and even in satellite towns such as Gurgaon and Noida. And salaries in rural set-ups — about US$100 a month for an eight-hour shift five days a week — are about half of what call centers in the cities pay. “It may not sound like much, but US$75 to US$85 a month is huge for a rural housewife, especially when it’s neither project-based nor seasonal, like agricultural income,” say Manoj Vasudevan, CEO of SourcePilani, which runs a 50-seat BPO center in Rajasthan’s Pilani district.

Access to female employees is an important reason rural India makes sense. Not only are women equally adept at handling IT tasks, they have proved to be more loyal employees. “The already-low attrition rates can be brought down even further by employing women. They are less likely to move away to urban areas,” says Raman of Source for Change.

There’s the greater good to consider as well, experts note. Through job creation in villages and semi-urban areas, migration to cities can be reduced. As a result, disposable income among lower-income groups increases and villages are provided a means of sustainable development.

Ambitious Rural BPOs

Most companies setting up BPO operations in rural India operate as third-party service providers to multiple clients. A few, though, are captive back-office centers for big companies. In July 2008, HDFC Bank set up a BPO center at Tirupati in Andhra Pradesh state through its subsidiary Atlas Documentary Facilitators. The center’s approximately 550 employees are involved in non-core operations, such as data capturing and indexing of customer details — work that was previously handled by more than 1,000 employees in Mumbai and Chennai. The center handles 22,000 applications a day at the rate of 100 applications a person in an eight-hour shift.

The Tata Group, meanwhile, aims to hire 5,000 people for rural BPO operations over the next few years. Called Uday, the BPO centers are an initiative of the community services arm of group company Tata Chemicals. Already, more than 200 people are employed at two BPO centers at Mithapur in Gujarat state and Babrala in Uttar Pradesh state. The Babrala call center functions as back office logistic support for Tata Indicom customers in Uttar Pradesh.

The Uday centers and HDFC Bank’s BPO branch are exceptions. Typically, rural BPO outlets are small — with 25 to 50 seats — and don’t have the luxury of big clients. Consider DesiCrew: The Tamil Nadu state-based BPO was incubated in 2005 by the Indian Institute of Technology, Chennai’s Rural Technology Business Incubator, and used the network created by the Indian government’s Common Service Center initiative, which aims to set up one computer in each village across the country. Eight months into the project, though, DesiCrew’s founder and CEO, Saloni Malhotra, realized it wasn’t working. Security, professionalism and reliable infrastructure had become insurmountable issues.

Next up was a franchise arrangement under which a franchisee was responsible for the infrastructure while DesiCrew brought in the work. That didn’t work, either. “It was probably an idea ahead of its time,” Malhotra says. “The franchisee wanted commitments on work before investing in the business; the client wanted to see an established unit before offering work.” The solution meant investing US$55,000 to US$160,000 in each center. DesiCrew Solutions was spun off as a commercial entity in February 2007 with three employees each in four units. But it didn’t get its first big client until the end of that year. “We took any work that came our way, even if it was worth just US$20 or US$25,” Malhotra recalls.

Since then, the company has grown to employ close to 100 people. The individual units broke even in mid-2008, and the company started making money in 2008-2009. By the end of 2010, DesiCrew plans to expand its workforce to 1,000 people and establish a pan-India presence.

Other rural BPO outfits are equally ambitious. Vasudevan of SourcePilani, for instance, wants to increase headcount to 100 by the end of the year and then sell the franchise to a village cooperative. That way, he will recover the US$100,000 invested in setting up the BPO center, and he will earn a 15% royalty from SourcePilani’s future operations. “This is also a great way to bind people to the organization. With a 100-seat unit, each employee-owner should get an extra US$40 every month as their share of the profit,” he says.

Surmountable Obstacles

It’s not going to be easy, though. Rural BPO centers are dogged by problems that are not going away soon. Foremost is infrastructure. Power in the hinterlands ranges from erratic to nonexistent, with entire villages still awaiting electrification. So, any prospective BPO needs to budget for a heavy-duty diesel generator. To be fair, that’s an expense for most BPOs even in urban locations.

Broadband connectivity is another hurdle — though it, too, can be surmounted. “Bandwidth and connectivity are constraints if you take the country as a whole, but if you’re looking to target finite locations, there will be acceptable connectivity within striking distance,” says Nasscom’s Bhatnagar. Besides, non-voice BPO work has a lower requirement for broadband. Periodic updates of data work are sufficient, so real-time connectivity is less of an issue.

The issue of community acceptance can also be tackled relatively easily if BPO firms partner with NGOs and local government departments familiar with an area. HDFC Bank, for instance, joined forces with the employment generation and marketing mission of the department of rural development in Andhra Pradesh to identify potential employees for its Tirupati BPO. Source for Change got buy-in from locals because of its association with the Piramal Foundation; Bagar is the ancestral village of the Piramal family. And SourcePilani had the backing of the Goenka Foundation as well as the premier Birla Institute of Technology and Science (located in Pilani) to ease its way.

Getting the right people and overcoming market skepticism are much harder problems to solve — but they are more critical to BPO success. Managers at rural BPO centers acknowledge that recruitment is a much bigger deal for them than it is for their urban competitors. “We need really smart people so that our clients have one reason less to go elsewhere,” says DesiCrew’s Malhotra, who says she takes on board only one in about 45 applicants. Adds Vasudevan, “We need to get the recruiting right the first time; the community may not accept you if you goof up initially.”

Naturally, training is more intensive than in urban BPO centers. What is taught also varies considerably. Source for Change’s Raman recalls that some women didn’t know how to turn on a computer. Most rural BPOs require basic educational qualifications, usually high school graduation. They don’t insist on fluency in English, but do seek some proficiency in the language, including the ability to sound out words, even if the meaning is unclear. Where a gap exists in formal qualifications, testing for logic and abstract thinking may occur, since concepts like “file” and “folder” may be difficult to grasp for someone unfamiliar with computers. Immersion training in computer applications, English language comprehension and grammar, and speech and etiquette are now standard practice at most BPO outfits. Still, it may take two to four months before an employee is ready to tackle basic work such as data entry.

Low-hanging Fruit

Typically, rural BPO centers begin by offering basic digitization services such as data entry and data conversion. But even getting that level of business can be an uphill task. NGO connections can help rural outfits tap into extensive networks of companies willing to contract work to these centers as part of their corporate social responsibility initiatives, but it’s still not easy. Companies need to constantly pitch for clients — proving their capabilities, emphasizing their infrastructure (building in redundancies in power and broadband are, therefore, musts) and pushing the cost-value advantage.

Once clients come on board, though, BPO industry observers recommend quickly offering value-added services. Plain vanilla data work may be a starting point, but most clients will soon look for an outsourcing partner who can offer them extras such as data analysis, report preparation, and graphics and layout services. If rural BPO outfits can’t build those capabilities in-house, it may be worthwhile to partner with urban centers that can offer the services. “Infrastructure and technology are seen as challenges, but these can be tackled easily. It is more critical to show clients that you have a process that can be repeated, duplicated and scaled up,” says Quatrro’s Roy.

Because voice work is still somewhat difficult for rural BPOs, many are experimenting with other kinds of services. SourcePilani, for instance, may be the only non-urban BPO that does medical transcription work. DesiCrew has undertaken web site content creation and validation, GIS-based mapping and transcription work. SourcePilani now also offers social media marketing services. It manages accounts for clients on social networks such as Facebook and Twitter, providing regular updates on industry and company events, products and special offers. “There’s a huge market for this internationally,” says Vasudevan.

Source for Change is also trying out different avenues. It has done web research projects, transcription and translation work, and is now running a job web site as well. Raman is keen on pursuing Hindi-based voice work and has already done a pilot project for a client.

Will rural BPO centers succeed in India? Everest Group’s Gupta is convinced they will be “relevant.” IIMA’s Dass says the domestic BPO business is large enough to make rural BPOs viable. So why haven’t more clients signed on? Nasscom’s Bhatnagar believes there may be a herd mentality at work among client companies. “No one wants to be the first [to opt for a rural BPO]. But success stories build on themselves, and there are already successes to be seen.”