Slowing growth and increasing protectionism in the US and Europe, the biggest markets for India’s business processing outsourcing companies, has raised a new set of challenges for what was once a poster boy of Indian industry. How should industry cope? N V ‘Tiger’ Tyagarajan, in his second stint as President and CEO of Genpact, discusses these issues, learnings from past turbulence and Genpact’s strategy going forward. Edited excerpts from an interview with Bibhu Ranjan Misra:
You recently announced that you would shift base to the US. Why?
I think it is good to run the company from the markets. To take the organisation to the next level, you need to be in the market with the customers and thinking about new ideas. I am a big believer that leaders of the company should spend a lot of the time with the customers in the market.
This is the first change you are planning in the CEO’s office in your second stint. What’s next?
There will be no headquarters. How can you have headquarters when the leadership is distributed and the leaders are in different parts of the world in different days of the year? Or when your value proposition is that you are a virtual company? Therefore, the next evolution of the company is that headquarters will be wherever I am every day.
You are yet to appoint a COO…
We have some great leaders who run the processes. That’s what we are known for and that’s our core strength. In any case, even when I was in India, I used to travel most of the time and will continue to travel. Now, the travel will be in this direction. I will be in India every month. I think it makes a big difference when we are waking up in the morning thinking what is the next customer problem and what are the next customer opportunities you can think about or what’s happening in the world.
There is a perception that the BPO sector has been largely unaffected by the slowdown when compared with the IT industry. Do you agree?
No, it’s a very different effect for the BPO industry. If you look at the revenue, the growth of the IT industry before the slowdown was quite steep and the fall was also equally steep when the slowdown occurred. When the recovery happened, it picked up faster. The BPO industry was growing slower, so when it declined the fall was minimal. When the recovery happened, it moved up at a slower pace. It’s a much smoother curve for the BPO industry.
During the last three years when industry was growing slower, BPO continue to post growth. What is driving this growth?
The BPO business has a much longer cycle, especially on the process side. It takes nine to 10 months for a prospective client to plan to outsource and actually take a decision to do so. It takes another nine to 10 months to actually transition the work. So from engaging with a client to actually getting revenue from it takes at least 24 months. So, when you have a long-cycle business, some of the revenues you are seeing now might have been the decisions taken a long time ago. It is a completely different ball game when compared with IT, both are into different sales cycle.
But the macroeconomic challenges persist and people are talking about an imminent double-dip. How will this affect the sector?
I don’t want to predict any macroeconomic challenges. Our belief is that the world has changed. The days of steady and great growths across the world are gone. Uncertainties have become part of our life. It is the way we think about our business and the clients think about their business. This is why you need to be diversified enough so that when something goes wrong somewhere, you have something else to work as a buffer. To be able to be flexible and nimble, you need to be able to move across different industries, markets and different service lines.
Will it affect the demand for BPO partners?
The most important thing the global recession has taught is that our clients have become cleverer about the way they run their businesses. They have learnt how to run their businesses differently. They have already taken a lot of cost-cutting and restructuring measures. They are not adding fixed costs. Whenever they find recovery, they are continuing to use variable cost structures. The benefit of our industry or the IT industry is that we have worked in tune with this variability in clients’ work needs and costs. In the past few years, the IT and BPO industries were focused on improving the costs for the customers and it’s still a big focus.
Under the debt ceiling deal, the US is planning cost-cutting measures that are expected to affect various sectors like healthcare. Is this not cause for concern?
We have not yet felt the impact of debt ceiling per se. Our global customers know that they are in a world that has demand constraints and is seeing slow growth. They need someone to help them grow amid all these uncertainties by identifying the risks and variabilising the costs. Of course, the unemployment rate continues to be high in the US, which makes a lot of difference.
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The BPO industry is known as a job-killer in the US. Will the new equations in the US not affect outsourcing per se since Americans are encouraging the creation of local job opportunities?
If nothing catastrophic or dramatic happens, it will be interesting to see how this plays out. In the last cycle, when the economy stumbled, companies had a lot of slack. This time, all companies are operating on very tight budgets. So even if there is a little bit of growth, all outsourcing opportunities will come to global providers. This is why the IT industry took off so quickly when the recovery happened. Besides, clients don’t want to hire because they want to keep the risk of that hiring outside their books. They prefer their partners to do it.
Is India as a destination for high-end BPO work mature enough to compete with some specialised geographies?
We don’t think about the India BPO industry versus the Philippines BPO industry. For us, it is a global industry. We often provide solutions to our customers taking the best of skills and expertise from multiple geographies whether it is Philippines, Guatemala or Bucharest. There are certain areas in which Philippines will always be better than India. For example, when you are managing a consumer call in the US, there is no question that India can’t be as good as Philippines.
Recently a global client terminated its retail banking call centre contract with an Indian service provider, saying its customers were “feeling frustrated dealing with offshore call centres”. Is that not a bad sign for the industry?
Each customer makes its own decision, so I can’t comment on that. We do similar work for a lot of clients from India that is also hugely successful. To a great extent, it’s a question of who the provider is, not where the service is being provided from.
The twin issues of attrition and getting the right skill continues for the Indian BPO industry? How do you cope?
Our attrition is lower to everyone else by 50 per cent, but the change is not so easy in India. This is an economy that is growing at nine per cent. In the worst of years, it will grow at six per cent. That’s a fabulous growth rate. When you have an economy that is growing at eight or nine per cent, it means typically that 25 per cent of the companies in the economy are growing at over 25 per cent — three times the average growth. This means there are companies that are adding one-fourth of their size every year to themselves. They have to get the people from within the industry just to sustain that kind of growth. So, the nature of the economy drives some of that attrition and it is not going to change. We can’t blame the industry and a particular country too much for attrition.