Offshoring flux

Offshoring is going through a state of flux. Three foreign firms, led by Apple and Powergen, have decided to close their Indian operations. On the other hand, ICICI OneSource has decided to acquire a presence in Northern Ireland and most recently TransWorks, a BPO firm belonging to the Aditya Birla group, has clinched the deal to acquire a Canadian outfit (Minacs), thus catapulting it to the Top 10 BPO league in North America. These developments raise the question: has there been any loss of shine in India's attractiveness as an offshoring destination?

Indian BPO industry experts attribute the departures from Indian shores to management problems in the firms concerned. Apple could not scale up as it had envisaged and was hit by severe attrition. Powergen has referred to quality complaints from its customers over calls answered from India, but it has also to be borne in mind that the British firm is now German-owned. European attitudes to offshoring are rather different from Anglo-American ones. If two firms quit Bangalore after 200 set up shop in the previous year, then that can hardly be seen as a reversal of trend.

On the other hand, the logic driving Indian players overseas is clear. Outsourcing includes near-shoring. Customer needs and predilections differ and Indian firms seeking to go global have to develop a presence in different geographies""as the big firms have been doing. Geographical reach helps acquire customers, relationships and skills, and overseas acquisitions come with the need to take over local staff and hardware. HCL was the first Indian operation to go to Northern Ireland some years ago, and ICICI OneSource is headed now in the same direction, even as TCS has recently secured a large BPO deal from Pearl of the UK. Indian IT-ITES firms are becoming global in thinking, instead of being just Indian firms with international operations. That is a transition to be welcomed; among other things, offshoring will not be seen as an India-specific development.

The Powergen head has justified his firm's decision to end incoming call handling from India on the grounds that cost was important but not at the expense of minimum acceptable quality. Language and cultural issues have always had a bearing on incoming call handling from India, which also happens to be among the least value-adding services that get offshored. So it is just as well that Indian BPO leaders are reducing their dependence on call centre work. On the other hand, captive centres of overseas firms in India are about a third costlier than Indian third-party operations. So if a company prefers to keep it all in-house and does not build scale, it will have to take a call on the future, as Apple has done. At the same time, IBM, Accenture and most recently EDS (through its acquisition of Mphasis) are building up headcount in India in the tens of thousands. The bottom line is that India remains an attractive destination for offshoring, but not necessarily at the low-value end of the business, where costs have been climbing. Knowing this, India's IT-ITES leaders are venturing into the world outside and going global. For their part, global firms must carefully assess the costs of doing business in India.