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October 18, 2003

Knowledge@Wharton's interviews with BPO experts

Ravi Aron, a Wharton business school professor, interviewed a range of experts to obtain different perspectives on the latest trends in the BPO industry. The interviews were published in the latest issue of Knowledge@Wharton. As a sample, I'm posting below some extracts that I found to be especially interesting.

Extracts from the interview with Rebecca S. Scholl, principal analyst at Gartner Research:

Aron: Is the decision to migrate or outsource a process seen as a strategic (as opposed to tactical or operational) decision? Who makes this decision within the firm? CEOs, CFOs or CTOs?

Scholl: Key decision-makers for domestic BPO are the CFOs and the CEOS (in large enterprises the CFO plays a larger role and in smaller enterprises the CEO plays a larger role). CIOs and CTOs are rarely involved in the initial decision to outsource and typically get involved during the provider selection process. Most offshore BPO is highly tactical today (CIOs are more involved in offshore BPO as they are in domestic BPO).

Click Here to read the full interview.

Extracts from the interview with Peter Bendor-Samuel, founder and CEO of Everest Group, a consulting firm in Dallas, and Michael Quinn, president of Strategic Management Solutions:

Bendor Samuel: Clearly at this time India has the largest capability for English speaking labor arbitrage and has the most significant momentum with organic in-country firms. We do not expect any other nation to seriously challenge India for U.S.-based business over the next two years. For Europe, we expect Eastern European nations to emerge as destinations of choice, although at a higher cost point to India....

...We believe that the most significant development in offshore outsourcing will be the growth of large sustainable business processes such as claims processing, back office functions such as F&A and HR, and application support. We expect BPO will overtake the current IT-focused projects oriented work.

Click Here to read the full interview.

Extracts from the interview with Kiran Karnik, president of Nasscom (India's software and BPO industry association):

Aron: Some groups that advocate labor interests claim that many of these operations are data sweat shops – i.e., that workers are paid substantially less than the average income levels for equivalent levels of occupations in the country. As a result, they argue, these workers are quite badly off and they work for bare minimum wages. Can you give an estimate of the average salary of a call-center worker in India, and then tell us where this would place her or him in an income gradient - compared to the country’s per capita income?

Karnik: According to a NASSCOM-Hewitt Associates survey, the average salary of a call center worker in India is $180 a month. This is five times the country’s per capita income. For a fresh college graduate, a call center job pays about 2.5 times as much as other job openings.

Karnik: NASSCOM estimates suggest that private firms have spent close to $4 billion in setting up a world class, large and spatially dispersed telecom infrastructure in India - this includes connectivity by fiber optic cable and satellite. The cost of an international half-circuit (India-U.S.) is approximately US$1,900 for a 2 Mbps link.

Karnik: The software services and BPO services export industry in India has grown its revenues from $6.2 billion in 2000 to $7.7 billion in 2001 and $9.5 billion in 2002. In 2003, NASSCOM estimates the industry will grow its revenues to $12 billion.

Click Here to read the full interview.

Extracts from the interview with Marcus Courtney, an organizer with the Washington Alliance of Technology Workers, an affiliate of the Communications Workers of America, and Ron Hira, a professor of public policy at the Rochester Institute of Technology:

Courtney: I have yet to find any compelling argument from pro-globalization cheerleaders that can point to how in the long run this will create more jobs and greater opportunity. If exporting jobs creates more jobs or saves jobs, why does our manufacturing sector continue to decline in employment?
Aron: I often hear an argument from senior executives who favor outsourcing. They maintain that in many cases, migrating some operations to lower-cost labor regimes actually results in saving jobs. That argument runs thus: When some jobs move to lower-cost centers, that move makes other parts of the company viable and results in saving several other jobs. For instance if a retail bank with a 1,400 person back-end operation that supports product lines that are barely profitable (or are unprofitable) moves 400 seats overseas to contain and manage its costs better, then the remaining 1,000 jobs are saved. If the company is forced to run all its operations from within the U.S., then it would have to withdraw from several product lines because it is unprofitable to compete in those markets.

This would have a two-fold impact: First, workers would be laid off from those unprofitable product lines, and second, consolidation would occur. A few large financial services companies (retail and corporate banks, insurance firms, brokerage houses) would grab most of the market share. As we know, the direct impact of such consolidation is the loss of jobs through centralization of operations. Outsourcing of services allows firms to stay competitive and saves several jobs that remain. How do you react to these observations?

Hira: This probably does happen in some cases, but my sense is that this is the exception and not the rule. I’d love for someone to actually collect statistics on this and give me a real and verifiable example. Companies have obvious interests in all of us believing that this is the norm rather than the exception. I’m willing to bite if provided a better sales pitch, but I doubt that is coming.

Click Here to read the full interview.