Tier 2 cities like Nashik and Mangalore fight back on high costs

Weekly news updates on trends and happenings in the Indian Outsourcing Industry

BPOs are looking to nearshore as the rising rupee, increasing wages and taxation in India are impacting them adversely. Meanwhile, those in India are looking at tier 2 cities like Nashik and Mangalore to beat the high cost of operation in major metros.

- Chillibreeze Business Research Team

The rising rupee, wage inflation and increased taxation concerns have started to show their impact on the Indian IT and BPO industry. Experts feel that if the rupee keeps appreciating and the wages keep inflating, offshoring may give way to nearshoring.

“We see costs rising in India and people becoming less available. That’s why we’re going to places like Latin America, which has professionals and reasonable costs,” said Gabriel Rozman, head of TCS’s operations in Latin America, Spain and Portugal.

TCS on Tuesday announced that it’d hire 5,000 people in Mexico. India’s largest BPO Genpact has already declared that it will shift its base to China the day it becomes cheaper than India. While Hungary and Czech Republic is a nearshoring hub for Europe, China is a nearshore hub for the Japanese and Korean markets and Mexico is a nearshoring hub for the US.

The Indian rupee has appreciated about 8.7 per cent last quarter and the Indian BPO industry works on a net profit of about 10-11%. “It’s a wake-up call for the government. With this kind of situation, how will the BPOs pay taxes? Why should Indian IT and BPO companies operate in India when there is no support from the government?” asks TV Mohandas Pai, head, HR, Infosys Technologies.

The situation of pound sterling versus Indian rupee is also not very good for exporters. The rupee was about 87.9 against the pound on December 12, 2006. It rose to Rs 79.2 against the pound on May 22, 2007, and is trading at around same levels. Thus, it’s becoming more affordable for Indian IT and BPO companies to service UK clients from places like Budapest and Prague.

The Hungarian Forint (HUF), however, is trading at around 189.3 against the dollar and is pretty stable. Mexico’s peso, however, has weakened sharply against the dollar on investor fears that the US Federal Reserve would hold off cutting interest rates this year. The peso dropped 0.53 per cent to 10.81 per dollar on Tuesday. China’s currency yuan is, however, highly regulated. The central parity rate of the yuan, also known as Renminbi (RMB), stood at 7.63 yuan to the US dollar on Tuesday.

The People’s Bank of China announced last month that it would widen the floating band of yuan against the dollar from 0.3-0.5 per cent.

June 8, 2007
Source: Economic Times

Indian IT firm opens outsourcing in Poland

Taking advantage of a large pool of technically qualified young people here, Pune-based IT company Zensar has begun outsourcing services from Gdansk, the Baltic port city of Poland. The new centre is going to create around 350 new jobs in Gdansk in the coming three years. Zensar is going to invest over $2 million initially, a development received very warmly by the city mayor.

The first batch of Polish recruits has been trained in Pune and other batches will be going soon from Gdansk for training. The operation from Gdansk is the latest addition to Zenzar's global network of consulting and software development centres in the US, Japan, South Africa, Britain, China and India.

Apart from Zensar, Tata Consultancy Services (TCS) has for the past two years been doing good business in Poland. The Polish economy is the fastest growing in the European Union. Last year, it grew by 6% - the highest in the EU.

June 7, 2007
Source: Economic Times

eLogistics keeps track of stranded trucks

Chennai-based eLogistics, a logistics and supply chain services company that offers tracking-based solutions to improve logistics intelligence, has enabled fleet operators to not only keep track but stay in touch with the trucks stranded in riot-hit Rajasthan.

Around one lakh trucks are estimated to be stranded across various parts of Rajasthan over the past few days due to the caste-based riots that’s fast spreading to other parts of the country. But only 200 of them are equipped with eTrack, the tracking solution of eLogistics.

Most of these stranded trucks are carrying finished goods, including auto components from various sources to several destinations. While at least 38 of them are car-carriers, about 28 are transporting auto components to Mahindra & Mahindra and a few others carrying perishable items for Amul.

The tracking devices are also attached to special voice devices, enabling the fleet operators to call and advise the truck drivers on their next move. An estimated 10,000 such devices have been installed in trucks by various players. With 5,000 installations, eLogistics reportedly holds a 50% market share in this emerging market.

According to a Frost & Sullivan study, Indian tracking devices market is estimated to touch $78.2 million by the year 2011. However, the economic boom currently witnessed in the country, may help achieve this size by the year 2009 itself.

June 5, 2007
Source: Economic Times

Zenta plans to enter capital mkt

After Genpact, another BPO based out of India, Zenta (earlier H-Cube), is planning to enter the capital market. The firm, which is among the top 10 third-party BPOs in the country, is backed by the US-based private equity player GTCR Golder Rauner. The issue is being targeted for 2008 and the listing is likely to be on the US stock exchanges.

The timing of the IPO will hinge on how fast the company is able to meet its internal growth targets, a significant part of which will come from acquisitions.

“The issue could happen in the first half of 2008 if we grow according to plans,” President and COO Jack Freker, who was recently on a visit to India, told ET.

The company recently integrated three of its subsdiaries and merged them with itself to create a single entity, and also appointed a country manager.

June 4, 2007
Source: Economic Times

All eyes in Nashik for BPO hub

More and more companies are eyeing Nashik to set up their BPO centre as Mumbai and Pune have already reached a saturation level. Currently, nearly 20 IT companies, including BPOs like WNS Global Services, Tricom India, and Datamatics have found a new home in Nashik. According to a recent report on top alternative destination for BPOs in India by US-based consultancy firm Alsbridge, for smaller cities, Nashik tops the list followed by Mangalore.

Mangalore already has companies like Wipro, First American Corporation, and Mphasis, while Jaipur has one significant presence, Genpact. Ahmedabad is another upcoming city where companies like Bosch Rexroth, Stork, and Oracle are operating.

“There is increasing intent by both third-party service providers and captive BPOs to shift to tier III cities like Nashik to optimise the cost of operations resulting due to high attrition rates and increasing real estate costs in top IT cities,” says Sabyasachi Satyaprasad, head of advisory services at research firm NeoIT.

Nashik officials are touting huge manpower resources as one of the selling point for the city to the talent-starved ITeS industry. According to a government source, the current strength of BPO workforce in Nashik is believed to be around 2,000, but the number is expected to swell up to 10,000 by 2009.

Tricom India has nearly 400 employees in its Nashik facility and plans to scale this number to 700-800 by the end of the next quarter. Shifting to Nashik has resulted in 10-15% savings in manpower costs for Tricom. It is interesting to note that along with the BPO ready workforce in the region, companies opening centres in Nashik are also banking on the undergraduate college population to join the companies as they adopt the earn-and-learn model, say recruiters in the city.

Shifting to Nashik has helped companies to save on realty costs too. Realty-wise, Nashik has proved to be a safe bet as BPOs in this city are saving nearly up to 70% saving on real estate costs. Datamatics is another BPO looking to increasing its presence in Nashik. It is said to be buying a 15-20 acre space in the city and its nearby regions. But then there are still a few hurdles that this city needs to address before it can become the next IT hub.

For instance, finding higher management is a challenge in Nashik. Entry-level staff is not difficult, but firms are still relocating top managerial staff from their city offices. Besides, not many in a city like Nashik are exposed to international working standards. Plus, the skill levels for talent base in Nashik does not match the voice-based services, hence most of the BPO work in the city, at present, is non-voice data processing. WNS has nearly 1,500 employees for its non-voice transaction processing in Nashik.

Getting women to work night shifts has been another hurdle. It is the younger college going population that is keener to make a career in the industry, but the strict socio-cultural barriers are proving too hard for BPOs in the city to cope with. This has resulted in lesser graveyard shifts in the companies setting up centres in Nashik. And then there is the usual suspect: infrastructure.

June 2, 2007
Source: Economic Times