INDUSTRY REQUIRES US$ 3 BN FUND

'The first mover’s advantage can never, never be taken away from us by other countries'

TO acquire and retain a sizeable share in the global market in future, Indian BPO industry has to go a long way. "The journey is very long...There is still lot to be done. There is still lot to be accomplished but the first mover’s advantage can never be taken away from us by other countries", asserts Raman Roy, Chairman and Managing Director of Wipro Spectramind in an interview with Amitabha Sen. About Information Security he underlines that besides external certification like BS7799, an organization's internal process has also to be strengthened and religiously followed. On the issue of human resource he says the industry would require massive incremental investment to the tune of US$ 3 billion to create 1.0 million professionals to be required by 2008. Who would put in this money? How such a massive fund requirement could be met is very big question to be answered both by the industry as well as government, he points out.

AS: You are considered as ‘Guru’ of IT-enabled services business or popularly known as BPO industry in India. You have seen the industry growing over last about one and a half decades. How would you like to summarize this phase? Would you like to call it still a learning phase?

RR: The BPO industry is 12/13 years old and I have been very fortunate to have been with this industry since the beginning. I would say we are still a toddler. The entire concept of off-shoring is at a very nascent stage. We as a country have played a role in being able to demonstrate what is feasible from a remote location. The first few baby steps of this long journey has been very encouraging. The journey is very long because even at the end of the first decade the market share that India has in the global market of outsourcing is still less than one percent. There is still a lot to be done. There is still a lot that can be accomplished.

AS: In a recent study Gartner has apprehended that lack of a proper human resource strategy and problems relating to telecommunication and power may cause India’s share in global BPO business to shrink to 55 percent by 2007from the current 80 percent. Being in the thick of BPO activities-both at national and international level, do you think such apprehension is valid, has foundation?

RR: The apprehension is very valid. Today we are almost a monopolistic provider. The market will grow and as the market grows, our growth as a country is unlikely to be at the pace at which the market is growing because other countries are realizing the benefits of this industry. But in real terms the industry has been growing at a compounded annual growth rate in excess of 40 percent and I see no reason why we should not continue on that growth rate. Though the market by itself will grow at a faster pace and our share in the market is most likely going to come down, I don’t see that as an element of concern. Even if we try it, we cannot stop other countries from coming in. We can only make India more attractive but beyond that other countries will see an opportunity for them to play.

That is the first mover advantage that can never be taken away from us. Therefore the development that we have done, the expertise that we have developed, the competencies that we have created, will always be at a premium and that is the edge by virtue of which our industry has to grow faster and outpace other countries.

AS: Lot of talks are going round Philippines as an emerging competitor to Indian BPO industry. Names of countries like Vietnam, Ghana, South Africa, Mauritius, Fiji, Malaysia, Australia and New Zealand are coming up as a probable competitors in next three to four years time. What is the reality and how Indian BPO industry should cope with this threat in future?

RR: That is correct. Philippines, Sri Lanka, Malaysia, certain countries in eastern Europe, Africa, everybody will try. Everybody will try their hands. The way I look at it is that, it is only the success that gets copied by others, people don’t run up and copy failures. We have to be proud that we have shown the world today what off-shoring can do and the first mover advantage can never be taken away from us. So we are in a very good position.

AS: Is Indian BPO industry technologically matured?

RR: I would say so. The BPO industry is also called as IT Enabled industry, therefore IT is the backbone of this industry. We use cutting edge technology to offer real time services. However, the platform we utilize are not cutting edge platform. Those platforms are driven by the platforms that our customers utilized. There is an opportunity for us to upgrade that over a period of time.

AS: Information Security is probably one of the biggest challenges Indian BPO industry is facing today. Do you think that certification such as BS 7799 or SAS 70 or other international certification are enough to assure clients overseas?

RR: A Certification means what is required to be done, is independently verified as being done by a third party. How can one validate that the security norms that are set out are being followed in multi-location centers across the world or even within a specific region? An organization having multi-location facilities validates it by monitoring its own team and through an external certification. That is exactly what we do in India also. We validate it by our internal means and we validate it by external certification also. In fact, sitting in my office in Delhi I am able to say that whether it is Chennai Calcutta, Pune or Mumbai, the processes that we have set out for security are being followed as we do internal auditing from time to time. In addition to the certification, in foreign countries there are local laws that allow a staff to be prosecuted for violating the security norms. In India there is no such law. In India when an employee violates security, I can only take action against him for breach of employment contract. There is no criminal offence or no other offence unless of course he creates an offence that is an offence under the Indian Penal Code.

AS: What is the industry doing ?

RR: The industry goes to lawyers and sues the concerned employee for breach of contract.

AS: What the government is doing? Have you approached the government?

RR: We are working with NASSCOM and the concerned authorities as to what the law should be but that has many complications. Under the law if one is found passing the information on what he is working on to somebody else, he can be prosecuted. But when the same person is working in an Income Tax Department and shares information with others about someone's IT declaration, that would also be a violation. Thus there is an overall bearing of that law in the Indian culture. That is what the government is grappling with.

AS: That must be a major concern for industry.

RR: No it is not. If I have external certification that tells me that the norms that have been prescribed, are being followed and they are international quality and I still have a right to sue an employee for breach of contract and I have the right to sack the employee and I can tell the future employer that this guy has violated the norms hence sacked, there is a very significant protection that is available. But the suit if you file under breach of contract that may take three years; under a special law it may take one year. There is a time element to it. But is it a serious concern? I don’t think it is a serious concern. For example, if you want to come to our office with a laptop, first you will have show the laptop and get it checked, if you want to pick up any information about my company on your laptop, you will require prior permission to do that, because it may a client’s confidential data. But in many others, you can walk in with your laptop, no body stops you. No body asks you any thing. There is a cost element associated to upgrade to international norms. The concern is coming from these companies not being able to demonstrate international levels of security. and if security gets compromised the industry gets a bad name.

AS: What is the prospect of Indian SMEs in BPO segment?

RR: The largest business comes through the SME segment in any industry, whether it is in the manufacturing industry or services. There is a huge prospect catering to the needs of the SMEs but as the industry is only 12 years old it has to mature to realize that potential.

AS: You have initiated anti-poaching move and understandably were successful in roping in a good number of BPO units. What is the current scenario?

RR: The anti-poaching norm is at best a band-aid solution to larger problem. If you have bleeding and have a big wound, a band-aid is not going to solve it, but you can hope to stop the blood flow, while you find a bigger solution to cure the wound. That is what the issue is. Indeed anti-poaching has worked very well and we are very satisfied with the progress. But that is at best as adequate for band-aid solution which can be short term but the larger issue is training of the workforce to international level which is not dependent on the companies that participate in the industry.

Look at Philippines. Their colleges, universities and school train people on insurance, on mortgage, on legal, on customer servicing, on US GAAP etc. In India we do not have all of that. I have to take the raw material and I have to train them but that makes me uncompetitive when I compete with Philippines.

Let me give a different kind of example: the projection of NASSCOM is that we can have 1.0 million people in this industry by 2008. The present number is about 3.5 lakh, so 6.5 lakh people are to be added. If you are to add 6.5 lakh people, on a conservative basis and if you want seat utilization of two, i.e., one seat will be used by two people in two different shifts, we need another 3 lakh seats. One seat costs US$ 10,000. On a conservative basis, within next three years we will require incremental investment of US$ 3 billion to be able to meet our aspiration of getting 1.0 million people.

Now the BPO industry is treated as a subset of the IT industry as far Income Tax Act is concerned. The fiscal benefits under Section 10A and 10B have been withdrawn because the IT industry has matured. A new unit in this industry, that requires a massive US$ 3 billion investment in next three years, will have to pay tax on his profits after 2009. Even if tomorrow someone is to set up a new company, it will take one to two years to make it profitable. This means by 2007 this unit will make profit and he will only get a tax break for two years. When a venture capitalist has to invest in that company and he has an option to invest in a company in India where he will get a tax break for two years and he has to invest in a company in Philippine where he gets a tax break for ten years, where is the venture capitalist is going to invest? So we are our own enemy in creating a culture to develop and nurture a nascent industry. There is no other industry that is going to create 1.0 million direct jobs and two million indirect jobs. What we are doing about it?

AS: Around mid last year you cautioned that price wars between BPO firms would hurt the Indian industry’s competitiveness in the long run? How to curb this price undercutting or do you think there should be a gentleman's agreement?

RR: No, in an open market atmosphere an agreement or a cartel formation never stands the test of time. We have to set up basic norms of fulfillment to say that if you participate in this industry you must have BS 7799 certification or you must have a good management team. It is by ensuring the input measures that you will be able to automatically control the output measures. Cartel formation does not do anything.

AS: Last but not least, how do you find the prospects of West Bengal as a BPO destination compared with other states in the country? What would be your advice/suggestion to the state government to make the state more and more IT friendly?

RR: We are very excited about being in Kolkata. We are now more than 1500 people now since the facility was launched on 19th of November. We are little more than three months old now. We are very excited about the prospect. I would urge the government to work on the education system so as to create a workforce that has global fulfillment capability rather than leaving that only to the industry because of the huge number of direct or indirect jobs that this industry will create. So our first experiment of being in Kolkata is very successful. We like it. Our customers like it. But in the long term you will have to create a larger pool of employable talent.

February 24 , 2005