Americans, it seems, hate calling a help desk or customer service number to find an Indian on the line. Well, guess what, America? India doesn't particularly want to talk to you, either. As India's top companies get more sophisticated at taking over outsourced work from U.S. and European multinationals, they're finding that the lowest end of the business -- call centers -- just doesn't pay anymore. "Call centers have become commoditized," says B. Ramalinga Raju, chairman of Satyam Computer Services Ltd.
Like almost everyone, Indian operators dislike dealing with abusive customers frustrated by shoddy service. But more important, India's leading outsourcing shops say their U.S. corporate clients continually try to ratchet down prices, which inevitably drives down the quality of service they can provide. So lately, Indian outsourcers have begun turning down call center contracts, preferring better-paying deals for processing mortgages, handling insurance claims, overseeing payrolls, and more.
That doesn't mean India won't be doing call center work anymore. But outsourcing powerhouse Tata Consultancy Services Ltd., for instance, has turned away potential clients offering call-center-only work. "We are thinking about whether this is work we really want to do," says TCS Executive Vice-President Phiroz Vandrevala. At Satyam, just 35% of business process outsourcing employees are in call centers, down from 60% 18 months ago, Raju says. "We try to get into call centers only when it's in association with other business," says Raju. And New Delhi-based EXL Services annulled a help desk call center contract with Dell Inc. (DELL) because EXL was losing money on the deal. In April, 2005, EXL asked Dell to take back that business, but it kept other contracts such as one under which EXL operators call Dell customers to remind them to make loan payments. Dell officials in India didn't respond to a request for comment.
It's all part of an ongoing assault on the bottom of the outsourcing biz. Although they're the least profitable piece of it, call centers are no snap to operate. As the industry has heated up, with multinationals and locals alike hiring by the thousands, wages have increased and qualified workers have become scarce. In many shops, some 60% of staffers quit in the first year. Worse, these problems seem to afflict call centers more than higher-level outsourcing work. "The business is a hard nut to crack," says Rashesh Shah, chief executive of Bombay investment bank Edelweiss Capital. That has led to some high-profile departures. In June, Apple Computer Inc. (APPL) pulled the plug on a call center in Bangalore due to the high cost of operating in India. Two months earlier, British utility Powergen cited rising wages when it withdrew from a contract with call center operator Vertex Data Science.
THE NEXT BIG THING
As a result, call centers are becoming a less important feature of the Indian business landscape. In 2000, they represented 85% of the total back-office business; now they're about 35%, according to Nasscom, India's outsourcing industry trade association. And while call centers are still growing in India, the business is expanding at about 30% annually, compared with 60% growth for nonvoice back-office work, Nasscom says. "The intellectual value of India is not at this low end, but with taking large and complex processes and improving them," says T.K. Kurien, chief executive of Wipro BPO.
Even as the Indians become disenchanted with call centers, they're growing ever more bullish on business process outsourcing. The BPO industry doubled in size last year, to $6.3 billion, and is expected to clock 37% annual growth over the next five years, according to Nasscom. Two new American listings may give the sector an added boost. WNS Global Services, a former subsidiary of British Airways (BAB) that focuses on higher-end BPO work, led the way with a $224 million initial public offering on the New York Stock Exchange on July 26. One thing the company won't do, though, is much call center work. "We've always been skeptical about the call center business, the pressure on margins, and the recruiting and training costs," says WNS (Holdings) Ltd. Chairman Ramesh N. Shah. EXL, backed by Oak Hill Capital Partners in San Francisco, is planning an IPO for later this year as well.
The reason for the shift is simple: profits. Margins for call center work are in the low double digits, but they can top 30% for higher-end tasks, according to Nasscom. So Genpact, a former General Electric Co. (GE) subsidiary spun off two years ago, prefers to take on jobs that let it tap its expertise in analyzing zillions of bits of data to help clients work more efficiently. If call centers happen to be part of the equation, that's fine, but Genpact is reluctant to take up contracts for call centers only. "We tell our clients, 'Don't start with call centers -- if you do, do it together with something else,"' says Genpact Chief Executive Pramod Bhasin. "This is harder than customers expect and needs to be handled carefully."
Other companies are following a similar path. At Hewlett-Packard Co.'s (HPQ) back-office operation in Bangalore, just 150 of the 5,000 employees are involved in call center work, and they're only doing jobs that specifically support the nonvoice tasks. IBM (IBM) two years ago purchased Daksh, one of India's top three call center operators. When IBM bought the company, virtually all of its business consisted of call centers. Now, 40% of Daksh's work comes from higher-end business processing work. Even the call center work has been streamlined: In most cases, IBM seeks to move calls to the Web or to automated voice systems before turning the toughest cases over to a live operator. "It's no longer about cost," says Randy Walker, IBM's head of outsourcing for Asia. "Now clients want innovation and creative tools for superior performance."
So does this mean that call center jobs will make their way back to Peoria or Poughkeepsie? A few might. While outsourced call centers are here to stay, some are likely to migrate to locales closer to the markets they serve. That means smaller European countries, Canada, or less expensive areas of the U.S. might find some jobs returning. Bombay's ICICI OneSource opened two BPO facilities in Northern Ireland, while New Delhi's HCL Technologies bought a call center there. "We need global operations to be a global company," says HCL Executive Vice-President Sumit Bhattacharya. Some jobs may migrate to the Philippines, which has a close cultural affinity with America, and to even cheaper locations such as South Africa or Ghana. Many will likely stay in India with smaller outsourcing shops that are eager to snap up work that the bigger companies can afford to spurn.