By Preetam Kaushik
The development of a major BPO industry in the urban areas of India has triggered a lot of economic activity, but has also had a runaway effect on the cost of living. The increased cost of living, in turn, puts upward pressure on wages and works against the cost arbitrage model, the very rationale of BPO industry.
Urban Cost of Living Pressures BPO Wages
It is not uncommon to see Indians returning home after spending several years overseas (possibly as skilled resources for BPO projects) getting reverse cultural shock on the way cost of living has escalated in the past decade. India’s BPO sector is well aware it is starting to lose out on the major cost advantage it once had, as other low-wage countries become more aggressive in pursuing the same clients. In an attempt to stay competitive and attractive, the Indian BPO industry has had to reinvent itself. Offering services based in in Tier 2, 3 and 4 cities, and now in rural areas, are all a part of adding value for clients.
The move to take BPO delivery centers to the countryside, or to perform “rural BPO,” makes lot of sense, as reasonably educated local people can be hired in villages for half the wage they command in urban centers. In addition, operational costs such as leasing out space may also be only a fraction of what they are in urban centers. Furthermore, attrition is much lower in rural areas as job opportunities are relatively scarce compared to urban centers.
Cost Not the Only Factor
Of course, it would be unfair to suggest that India’s BPO success has only been about cost arbitrage. The cost savings are definitely fundamental, but factors such as Internet connectivity, infrastructure, and an English-speaking, educated young workforce that can execute complex processes on time are also crucial. And economies of scale provided by large BPO operations set up in major Indian cities may be the most critical factor of all. So how can BPO delivery centers located in rural India, which is not known for its English- speaking populations, nor for its advanced infrastructure, effectively compete with those in urban areas of the country?
For the most part, “rural” India does not mean remote areas of the vast nation, but refers to small villages located not too far from a Tier 1 or 2 city that include residents with at least some college education. As proof that rural BPO can work in India, let’s look at some current real-life examples. Indian BPO providers Quattro and Genpact are actually moving part of their work to rural areas. And provider RuralShores is completely focused on delivering services from rural areas and is positioned to serve bigger companies. Advantages such as 40-50% lower cost and much lower attrition rates will sound very attractive to companies once they are convinced that the model delivers.
However, rural BPO revenues are still only a small fraction of the total $101 billion, currently only totaling $5-7 billion as compared to the overall revenues of the India BPO industry, which are about $101 billion. The leading rural BPO companies such as RuralShores are showing a promising growth rate of 150-200% in terms of revenue; although the company has not broken even yet. The potential, however, is huge and obvious. Reaching it is a matter of demonstrating business success and cost savings for the big clients.