Thursday, January 09, 2014

Business Process Outsourcing in India and related HR Challenges

Notes written by Ozodi ARIAHU and Aramide BELLO
(Based on Thite, M. & Russell, R. (2007). India and Business Process Outsourcing.)

India is a country of complete contrasts – five star hotels surrounded by slums, white-collar workers rushing past unskilled labourers using primitive technologies, new globally branded cars navigating congested roads along with antiquated models, freeways and flyovers that suddenly lead to unpaved, snarled roads and so on. 

India Country data:
·         Three times the size of Nigeria, with triple the population density
·         Economy ranked 12th largest in the world
·         From the 2011 census, 58.2% of the labour force is in agricultural production (cultivators and labourers), 4 % in household industry
·         The remaining 37.6% would include both manufacturing industry and service provision

The Indian IT/ITeS/BPO Sector

The spread of the internet, with cheap and abundant telecommunications bandwidth, has enabled businesses to parcel out white-collar work to specialist outside suppliers, with countries such as India emerging as important hubs for producing services for consumption at the other end of the fibre-optic cable (Edwards, 2004).  This type of work is classified under service provision and termed the Information Technology, Information Technology-Enabled Services, and Business Process Outsourcing (IT/ITeS/BPO) sector.  

IT services include
·         Systems integration and information systems consulting.
·         Application development and support as well as IT training services.


IT-enabled Services (ITeS) include
·         Back-office data entry and processing.
·         Customer contact services (such as complaints, tele-marketing, collections support).
·         Corporate support functions (such as HR, finance, procurement, IT services).
·         Knowledge services and decision-support (such as customer analytics, claims and risk
·         management and consultancy).
·         Research and development services.

Outsourcing is the practice in which companies move or contract out some or all of their manufacturing or service operations to other companies that specialize in those operations or to companies in other countries. 

An example would be an American jeans manufacturer that closes a factory in the United States and hires a contractor in India to produce its jeans, which are then imported and sold with the American company’s logo.  According to Forrester Research, nearly half a million computer hardware and software jobs are expected to be outsourced from the United States to other countries by the year 2015.

Corporate executives say outsourcing helps their companies lower costs, increase profits, stay competitive, and that they ultimately transfer cost savings to the consumer as lower prices.

Currently, the BPO sector appears poised on an unstable knife edge. It involves a young, highly educated workforce conducting often routine work for which, in many cases, it is patently over qualified. As a result, the explosive growth of BPO in India has also given rise to startling attrition rates and working conditions that, although perhaps (temporarily) acceptable in urban India may well prove to be far short of employee aspirations. 

A brief history of Business Process Outsourcing in India
To most Indian software companies, BPO came in handy in the face of the downturn in the IT industry. Another stroke of luck for the industry was the cheap availability of abundant and under-utilised fibre optic cables laid under the sea by western companies during the e-commerce hype generated in the 1990s and their increasing bandwidth capacity (Friedman, 2005).

While the Indian software industry took more than 10 years to mature and climb up the value chain, the Indian ITeS/BPO industry has taken just 5 years (between 2000 and 2005) to do just that. Many of the top Indian software companies, namely; Infosys, Wipro and Satyam, have now set up subsidiary companies such as Progeon, Wipro BPO, and Nipuana, which are their
ITES arms.

Today, there are around 3000 IT companies in India currently exporting to over 150 countries with an employee base of around 700,000 and the top 5 Indian IT software & service exporters are Tata Consultancy Services, Infosys, Wipro, Satyam and HCL (Nasscom-c, 2005).

In line with this growth, the ITeS/BPO/KPO industry now employs not only generic graduates, but also MBAs, doctors, engineers and chartered accountants as process executives. Even for Customer Service Representative jobs, which are relatively low-skilled, the vast majority of employees are university graduates.

Apart from its sheer size, India currently constitutes an intriguing part of the globalization story
for its pioneering of what can be termed an Export Led Services Provision (ELSP) model. Today, anybody who visits India will see that changes are everywhere and the country is well and truly on the move.

Despite the spectacular growth and visibility of the IT/ITES sector, it is still largely irrelevant to the vast majority of Indians.  Altogether, the combined IT/ITeS/BPO sector employs under 1 million workers out of a total workforce (waged, salaried and other) that is approaching half a billion workers.   Thus it is that despite the tremendous success of IT and outsourcing in India, poverty persists with 35% of all Indians living on less than one US dollar per day. 

Labour and Human Resource considerations

Although Indian IT/ITeS/BPO workers are very inexpensive by Western standards, their salaries are high by Indian standards.  Currently, the sector is devoid of trade unions, while existing unions appear to be unprepared to enter the new economy.  With respect to changes in existing labour codes, a majority of the states have either promulgated a government order or notification permitting all establishments in the respective jurisdictions engaged in IT-enabled services (including call centres) to: work on national holidays; allow women to work through night shifts; and permit offices to function 24 hours a day, all through the year (Nasscom-g, 2005), although such practices have traditionally been banned through urban Shops and Establishment Acts. 

The industry faces skill shortages, but the question here is of quality, not quantity. While it is estimated that approximately 17 million people will be available to the IT industry by 2008 (Nasscom-j, 2005), the problem relates to their employability and trainability.  Jobs in IT minimally require a tertiary degree in engineering, computer science or mathematics, while call centre and data processing operations insist upon a Bachelors’ level degree and high levels of proficiency in spoken and written English.  Most Indians are not employable in the sector, since  literacy rates hover around 65 per cent for the population as a whole and at 45% for females. 

Attrition is the biggest challenge currently facing the ITES/BPO sector. The ‘race for talent’ as one HR manager described it between BPO suppliers is fierce; the poaching of workers has created much distrust among industry participants. Top five reasons for turnover in the industry: dissatisfaction with salaries (47%), lack of career opportunities (45%), leaving to pursue higher education (29%), illness (28%) and physical strain (22%) (DQ-IDC, 2004).

Marriage and pursuing higher education were frequently quoted as the main reasons for attrition. The night shift work that most of the employees are engaged in causes them, particularly, women, to leave this employment when they get married; hence, marriage is given as the reason for attrition.  To retain those workers who would leave for higher education, some companies are beginning to explore the possibility of providing scholarships, tuition reimbursement and special arrangements with education institutions that would allow them to offer courses in the workplace.

BPO companies may feel squeezed for profits.  Clients on multi-year contracts with BPO providers expect costs to fall over the course of the tender as the provider becomes more experienced and familiar with the client’s products and markets.  They also face shortages in leadership and supervisory skills, particularly at the team/project level.

Authors are undergraduate students in Electrical Engineering at Bells University of Technology, Ogun State.  They prepared these notes under my supervision for the course CEN 302: Introduction to ICT. 

4 comments:

Cheryl Martin said...
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Amelia said...

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