'Wage inflation could hit the BPO industry this year'

by Abhinna Shreshtha    Feb 28, 2011

The Indian BPO industry is perhaps the most amazing success story to come out of the country. But, the world is changing rapidly and it is time to sit back and ponder how the industry is keeping pace with changing times. We spoke with Keshav Murugesh, Group CEO, WNS Global, to get his views on this topic.

How has WNS re-organized itself over the last couple of years?
WNS has been through a major restructuring over the last one year. We have reorganized ourselves into a vertical-focused BPO company, which, I think has been done for the first time. We have mapped each of our horizontal offerings to each of these verticals. We have organized our sales teams into hunting & farming teams.

We have also renewed our thrust on our people management program to create a company that is focused on building careers. By doing this we want to create a company that our employees will be excited to be a part of. Externally, we are concentrating on expanding our global footprint; looking at 2-3 new locations besides the six we already are in. Our aim is to focus, in each one of our verticals, on new offerings such that we can move away from traditional linear models to more non-linear models.

So is the recession behind us now?
We have not passed all the recessionary trends till now. From a BPO perspective, we still see demand a bit sluggish. Two trends we are seeing - earlier only companies were focused on reducing costs, today even the government sector realizes that they cannot reduce the quality of services but they can reduce the cost of services that they provide to citizens and therefore there is this new trend that is taking place across the public sector. If you take a look at the last few visitors to come to India, you had David Cameroon (the British PM), President Barack Obama, and then the French president (Nicolas Sarkozy). Why are all these people coming to India? Because they realize to reduce the costs of public sector services in their countries; they need to invest in offshore companies.

The other trend we see is that BPO companies, including us, are now beginning to realize the huge opportunity that lies in the Indian domestic market and have begun to leverage it.

How do you see the emergence of newer geographies as BPO destinations? Should India be worried about its BPO crown?
Take our own example; we currently have six centers around the world, including India. Recently, we have been ramping our operations in geographies like the Philippines, Romania, etc. But one thing that we need to realize is that it is very difficult to replicate the kind of skill sets and knowledge pool that India has. It’s not very easy to replicate this in other countries, so I am confident that India will keep marching ahead. The country has so many natural advantages and a track record that is not easy to match.

Having said this, on the voice side, countries like the Philippines are doing a marvelous job, but can they bring this success to other services? Only time will tell.

Some time back, a lot of anti-offshoring sentiments were expressed by certain sections in the US and other Western countries. Is this an indication of a sea-change in opinion against offshoring or just marginalized trouble-makers?
We started this conversation by talking about how recessionary trends are not over and in the end it is up to the CEOs of countries like the US to decide what are the tools that they will use to dramatically reduce costs and ensure their companies survive. For now, the best solution for them is offshoring and outsourcing. Of course, we are conscious of the fact that costs have also reduced in many onsite locations. We, ourselves, have invested in creating new onsite centers in the UK and we are also looking to create an onsite center in the US. I think we will continue to leverage this model - continue to build onsite centers but do the ‘heavy-lifting’ from countries like India, where the cost advantage is significant.

Are costs still the deciding factor in the ITeS space?
I think clients are always looking at the best value and not what is cheaper. They are looking at their partners for cost and efficiency advantage, but the biggest thing they expect is for companies like us to go back to them with new ideas that drive their top-line and bottom-line, and this is where our strategy, which I spoke about earlier, comes into play.

There are quite a few IT companies who are also in the offshoring space. With their IT heritage do you see them mounting a challenge to pureplay BPO companies?
I think the IT business and the BPO/KPO business are two completely different things. On the one side the buyer is the CIO and on the other side the buyer is normally the CEO or the CFO. Therefore the buyers are completely different and the decision making and the way decisions are made are also completely different. We have seen a number of IT companies get into BPO and run into difficulties. Of course, some of them have also managed to create capabilities in the BPO space. But I think it is difficult for IT companies, in general, to match up to the capabilities of pureplay BPOs, who are totally focused on only one thing.

As IT has taken off in a big way, we have heard from some of our customers that the attention that they have been getting on the BPO side has diminished; and they should actually expect this. Clients understand that if your IT business is $1 billion and the BPO business is only a $100 million then you are going to give only that much attention to the BPO business as opposed to the IT side.

Is cloud computing the herald of a new delivery model for BPOs?
Delivery models will change, and people should expect that. The old models of headcount growth and revenue growth have gone. Clients are not ready to sign up for your headcount growth. It’s the new innovative models that people are focused on. As far as the cloud is concerned, it will have an impact in some areas. But because in a BPO you are so focused on operations, we see it more as an additional enabler and not something that can go and create a new model.

India has traditionally been strong in IT services and not in IT products. Has the meteoric growth of the IT services industry strangled the IT product industry?
I really don’t see any correlation there. Smart BPO companies will create a technology layer above the services layer and this might also get productized.

I think it’s a cultural thing - services companies will focus on services and product companies will focus on products. They are culturally very different areas. I really don’t expect the two to merge, that’s my opinion.

Any roadblocks you foresee in the near future when it comes to offshoring?
Well, the only big roadblock I see is how quickly clients take decisions on offshoring because it is not a question of whether it will happen or not but when. The reason is that clients, whether from the public or private sector, are actually so stressed because of costs that they have to figure out a way to reduce them. But what is happening is that they are taking much longer to take a decision.

For from a delivery point of view, with wage inflation, etc., it will be interesting to see which countries will benefit the most from offshoring. In India, for example, I would advise people to not go back to the old days and expect 10-15% compensation every year, because clients just can’t afford it.

You mentioned inflation a couple of times. How ready is the BPO industry to tackle inflation?
I think outsourcing companies are already preparing for inflation. At the same time, we expect wage inflation to hit us this year, but we have certain back-up plans to tide through this. Having said this, this kind of a scenario can’t sustain for too long and we would expect the government to take some strong action to control inflation so that India continues to remain a very strong and competitive provider of services in the long run.