It is said 90% of your business success is based on the location; luck decides the remaining 10%. For the Business Process Management (BPM) industry, location plays the principal role in business. When the BPM revolution took off in India, businesses were looking at setting up operations in Tier 1 cities or designated IT hubs. Land was available at affordable prices, there was a talent pool of English speakers, and cost-effective services were widely available. MNCs quickly capitalised on the business opportunities at these locations.
India's BPM sector manages 38% of the world's outsourcing business and is estimated at $150 billion . This has positioned India as a low-cost, high-quality destination for the global outsourcing industry. Per NASSCOM , the IT-BPM sector has created about 10 million jobs (2+ million direct and 8 million indirect jobs). By 2020, these figures are expected to go up to 10 million and 20 million, respectively. The industry also services 500+ companies and offers support in 35 languages . But many factors are stressing this advantage of late, especially the dilemma of continuing operations in Tier 1 cities.
Global and Domestic Strains for India's BPM Industry
As India's BPM industry expands, especially in Tier 1 cities, it faces several challenges due to high real estate costs, shortage of employable talent, competition from other Asian countries, opposition to outsourcing in the West, and high attrition. The US provides about 65% of outsourcing business to India and, along with other Western countries, it is now looking at other locations for the right talent and cost. For example, China is emerging as the go-to destination for low-value services, the Philippines for financial and voice-based services, Malaysia for gaming, Brazil for financial services, and Indonesia for engineering services and animation.
India continues to maintain its dominant position and remains the preferred BPM destination for most countries. But with its Tier 1 locations saturated with infrastructure problems or high costs, companies are looking to shift to smaller cities. The proliferation of IT/BPM organisations in Tier 1 cities has resulted in increased real estate costs, which has severely affected companies' bottom lines and forced many to move to Tier 2 & 3 cities. These cities present an attractive business proposition such as lower real estate prices, a job-ready talent pool, and good connectivity. This has opened up new opportunities for BPMs, making their move to Tier 2 & 3 centres an attractive business proposition.
Moving BPM Services to Small Cities Presents Challenges
Indian BPM companies offer a wide range of services, including customer and technical support, telemarketing, IT help desk, data entry, etc. Critics believe that talent availability, especially at the middle management level and the infrastructure in Tier 2 & 3 cities, are still not on par with Tier 1 locations. Scaling up the local talent on communication and domain will result in higher learning costs. BPMs will also need to convince clients that the work done in an IT hub can be effectively replicated in smaller cities. Tier 2 locations are usually focused on providing specific services, with most other Centers of Excellence still located at the primary locations.
It is imperative that the infrastructure and talent pool in Tier 2 & 3 cities is commensurate with the requirements of the industry. Good transport with airline connectivity and high-class office space are the first attractions for BPMs to shift to smaller cities. Second, they seek to establish new service lines for operating processes. This requires uninterrupted power and good quality broadband connectivity. The third is the creation of Software Technology Parks (STPs) that provide ready-to-plug IT and telecom infrastructure. New SEZs accompanied with tax holidays, which will boost BPM movement to small cities, is also lacking pace.
But There Are Also Important Drivers for Migration
NASSCOM estimates that nearly 58% of the current IT-BPM workforce is from Tier 2 & 3 cities. The study also says by 2020, four million people in the sector will be directly employed from these locations. Many BPM companies are shifting operations to cities like Pune, Chandigarh, Baroda, Ranchi, Vizag, etc., and can save costs by 40% in these new destinations. These are now the preferred BPM locations due to lower real estate costs, good basic infrastructure, low levels of attrition, and a high talent catchment area. On the other hand, the government's newly-launched Smart Cities Mission has selected 100 cities across India to provide them sustainable infrastructure. Their upskilling program also offers youngsters from smaller cities free skill development training to boost their job prospects.
BPMs too have tied up with prominent institutions to train graduates in soft skills, language skills, and technical know-how to later absorb them into their workforce. On the operations front, BPMs in Tier 2 & 3 cities were expected to handle transactional work, with complicated processes handled in Tier 1 cities. They are fast scaling up their delivery processes, thanks to their focus on upskilling talent and infrastructure investment. Also, establishing contact centres in smaller towns indirectly boosts other aspects of the economy, such as food and beverage industry, transportation, and infrastructure development. It also allows economic development to spread in these locations and bridges the gap between the state capitals and other cities.
Despite competition from other global locations, India's distinct advantage is its well-recognised and established BPM industry. Investment in the sector continues to be strong, with great focus on improving service delivery from routine transactional work to complex processes. The emergence of Tier 2 & 3 cities provides a great opportunity for BPMs to expand their operations beyond IT hubs, reduce infrastructure costs and overheads, and improve their bottom lines.
The successful migration of business to the new cities will lead to a rebranding of India's BPM industry. In fact, these locations will provide the much-needed respite from the infrastructure woes that Tier 1 cities face. The issue is about how the industry will drive the jobs toward the people, rather than uplifting them from smaller cities. It will create a strong ecosystem around local talent and infrastructure with the scope to elevate them to Centers of Excellence and consequently leading to an overhaul of the socio-economic dynamics of the country's smaller cities.
( This article has been authored by Guneet Arora. He has 21 years of experience in the BPM and Service sector, managing delivery and performance for Multiple Accounts & Verticals. Currently, he is the Director, India Delivery at Concentrix India. Mr Arora is responsible for all Domestic accounts across multiple locations, enabling performance through Continuous improvement and driving Growth & Profitability of the portfolio)
Source: Business Insider