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Ranjit Shastri

[October 6, 2003]

An Overview Of India's Call Center Industry

BY RANJIT SHASTRI


India has emerged as a major location for IT-enabled services such as call centers, customer support centers, medical transcription, Web site services, data digitization/geographical information services (GIS), payroll/HR services, back office operations and databases management. Such services generated $2.3 billion of revenues in the year ending March 31, 2003, up almost 60 percent from the previous twelve months; PSi's research suggests that such exports could exceed $15 billion annually before the end of the decade. Lower input costs, reasonably good infrastructure, a trained English-speaking workforce and a favorable time zone differential vis-�-vis the US have spurred the growth of the call center industry in India.

The US continues to be the biggest market for the Indian call center industry, particular the customer care segment. Other significant segments include administration, finance, payment services and content development. Major industry sectors include financial services, telecom, healthcare, human resources and hospitality.

The call center industry in India includes sales-based call centers or service-based call centers. The services offered include voice, e-mail, Web chat, sales, and customer care applications. Over the past several years, many new players have entered this industry. Today, there are almost 400 call centers operating (including "captive" operations, e.g. GE Capital) in India employing 171,000 people. PSi has profiled approximately 200 call centers in India. Our research indicates that over the next few years, about a dozen Indian call centers will have revenues in excess of $100 million. By way of comparison, only eight of India's 4,000 software companies have crossed the $100 million mark.

Entry barriers to set up a call center in India are low. Typically, the average investment levels for a 100-seat call center vary between Rs 40-60 million ($0.8-1.2 million). This cost includes premises, leased circuits, hardware and software. A major cost component is the procurement of an international leased line, which costs around Rs 8-10 million ($0.16-0.2 million). The cost of the solution in place varies depending on the type, and could go up to $20,000 per agent. Salary levels are at around $280-300 per month per person. Industry estimates indicate that the average cost per seat to operate a call center is around Rs 1-1.4 million ($2,000-2,800). Currently the operational cost per seat per hour in India is approximately $7. Indian call center companies expect the incremental cost of adding a new seat to be around Rs 80,000-100,000 ($1,600-2,000). Estimates vary depending on location, skills, service levels, etc. As a rule of thumb it costs 40-60  percent less to operate a call center in India than in the US.

Increased competition from within India has put pressure on the billing rates of call centers in India. Recent estimates indicate that billing rates have declined from around $20 per hour to $3 to $7 per hour in case of Web-based services and around $9 to $18 per hour in case of voice-based services.

The industry can be divided into the following four categories:

  1. Call centers that are backed by corporate houses such as the Tatas, Reliance, Bharti Group, The Hero Group etc.;
  2. Call centers that have been set up by professionals and funded by venture capitalists. Most of these majors have started their operations in the e-mail/Web-based services area;
  3. Outsourced centers of major corporations such as GE Capital, American Express and AOL Time Warner; and
  4. Technology vendors and other players. The latter are typically small call centers that have investment levels of less than Rs 100 million ($2 million).

Major demand drivers for the industry in India have been:

  • A decline of more than 25 per cent in international leased line costs in the last year;
  • Shortage of skilled manpower in the U.S. and European markets and a global trend to cut down costs;
  • Increasing globalization, helping major players to establish global linkages to share databases;
  • Ready availability of infrastructure such as telecom infrastructure and real estate. Some of this infrastructure exists as a carry-forward from the current business lines of some of the majors;
  • A time zone differential enabling quick turnaround of assignments;
  • The largest English-speaking population after the US;
  • A workforce of educated, English speaking, tech-savvy personnel; and
  • Cost-effective manpower.

The possible constraints for growth include:

  • In the case of voice-based call centers, the Indian accent is considerably different from an American accent;
  • Infrastructure problems: Transportation for employees, power reliability, phone reliability, etc.;
  • High attrition of employees -- 35-40 percent annual employee turnover is typical;
  • Regulatory action against Indian vendors in reaction to job losses in the US. Several U.S. state legislatures are considering bills that would require state contractors to use U.S.-based employees; and
  • Concerns about India's proximity to sources of instability, such as Afghanistan and Pakistan.

Being a nascent industry, the call center business in India is likely to witness rapid change over the next few years. India's leading call centers are beginning to transform themselves into helpdesks, a step higher in the value chain. Such movement involves providing solutions for customer specific queries/problems in addition to the regular customer service. Rapid technological shifts such as the increasing prevalence of the Internet, advancements in speech recognition software, and changes in the analytics software market will continue to have an impact on the industry.

One of the biggest changes will be the growth in independent call centers. Thus far, India's BPO/call center industry has been dominated by captive centers set up by companies such as GE Capital (12,000 employees), American Express (4,000), Standard Chartered (3,000). PSi's research suggests that some of these captive units might even be spun off into independent ventures or acquired by independent call centers.

PSi interviews indicate that as the size of India's BPO players increases, customers will begin to consider them for larger contracts. This will bring Indian players into direct competition with major international outsourcing companies. The major challenge for locally-owned call centers in India will be the entry of international call center and BPO operators. Accenture and IBM have well large and established operations in India. Covergys Corporation set up a call center in India 18 months ago and it already has 4,500 employees. EDS set up a 700-seat center in Bombay in May. CSC has also set up a center on the outskirts of New Delhi, and ADP is setting up a facility in Hyderabad.

As the size and complexity of outsourcing contracts increases, many organizations will increasingly turn to intermediaries for support. Many U.S. firms wanting to outsource to India for the first time have a general lack of understanding of the issues associated with offshore work. Service engagements are becoming more complex, and customers are becoming more aware that the process of crafting long-term service relationships is an art that requires market expertise to ensure success.


Exhibit 1


Specializations of Indian BPO Players
By Sector/Vertical, Selected Players

Sector Indian Vendors
Financial Services ICICI OneSource, exl Services, Wipro Spectramind
Telecom HCL Tech BPO, Hinduja TMT, ICICI OneSource, Wipro Spectramind
Healthcare Apollo Health Services, Ajuba, Healthscribe, Hinduja TMT, Vision Helathsource
HR Daksh, Exult, Patni
Hospitality Bird Group, ICICI OneSource, Wipro Spectramind, Kale Consultants

Exhibit 2


Prominent players in the call center and BPO market in India (2002)


  $ Mln Sales People Voice/Non-Voice
Wipro Spectramind 41 5,000 80:20
Daksh eServices 35 4,000 70:30
WNS 35 2,500 65:35
exl Service.com 28 2,300 75:25
OfficeTiger 25 1,000 0:100
HCL Technologies BPO..N/A 1,646 90:10
ICICI OneSource N/A 2,175 70:30
Hinduja TMT 24 1,400 66:34
MsourcE 20 3,162 93:7
Tracmail 11 1,000 50:50
Progeon 4.4 685 30:70

Source: BusinessWorld


Exhibit 3


Examples of Captive Operations in India

GE Capital...............Customer service
American Express.........Customer service
Standard Chartered.......Back office admin
EarthLink................Customer service
AOL Time Warner..........Customer service
Citibank.................Back office admin
HSBC.....................Back office admin
AXA......................Insurance claims adjudication
Willis...................Insurance claims adjudication
American Annuity Group...Insurance claims adjudication Lufthansa................Accounting, frequent flier programs
World Bank...............Payroll processing
McKinsey.................Research

Ranjit Shastri is managing director of PSi . PSi, Inc. is a focused, client-centered consulting firm incorporated in New York with an associated company in India. The PSi team combines global ideas and Indian business experience through our people, who have extensive experience both in India and abroad. PSi has worked with approximately 10 per cent of the Fortune 500 that have entered India since 1989, and has been associated with a number of major success stories. PSi has also been very active in the area of private equity, assisting private equity firms and a major fund-of-funds in identifying and evaluating investment opportunities.







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