Indian back-office processing firms are planning to expand operations in the US following a fall in real estate prices and labor costs and a rise in anti-outsourcing sentiments there.
The industry, which traditionally followed the offshoring model, is now looking to open facilities and hire locals in low-cost locations in the US. Their aim is to woo first time outsourcers and win projects in highly-regulated sectors.Wo
As these firms boost their onshore presence and follow the IT services industry in hiring locals, their business model is set to shift from a primarily offshore-revenue model to an onsite-offshore model, companies and experts tracking the sector said.
“We see the BPO industry changing. Based on the availability of skill and cost, about 15-20% of work will eventually be done in local geographies,” said Sanjiv Kapur, senior VP and head of BPO at Patni Computer Systems.
This shift comes even as the more high-profile IT industry attracts flak for not hiring locally in countries such as US and UK. Last year, a legislation proposed by senators Chuck Grassley and Dick Durban sought to prohibit firms that have over 50% of staff on H-1B and L-1 visas from hiring more people on these two visas. Indian IT firms are the biggest users of H-1B visas but in contrast, their BPO arms have limited use for them because most of their projects are done offshore.
But as new opportunities — unlike the traditional outsourcing format — open up, BPO firms find merit in having onshore facilities and hiring locally.
Compared with the IT industry, which hires technology workers, BPO firms have more diverse manpower requirements. Knowledge of local regulations in a specific industry or process too would be handy here.
A comparatively high jobless rate in the US, hovering at around 10% now, which has driven wages lower and made more manpower available, is helping the BPO firms.
According to Keshav Murugesh, who recently took over as CEO of India’s second largest BPO exporter WNS Global Services, real estate prices have dropped nearly 30-40% in places like Scottsdale, Arizona.
Cities such as Kansas, Memphis, Detroit, Miami and Omaha offer potentially attractive locations for setting up onsite facilities. Omaha, the home of insurance, for instance, is a low-cost location with many universities, Mr Murugesh added.
“In the BPO context, about 95% of the work is done offshore and only 5% onshore. These firms have started thinking about nearshore and onshore delivery centres,” said Arup Roy, a senior technology analyst at research firm Gartner.
Last week Patni acquired a BPO delivery centre in El Paso, Texas, following a deal with a healthcare insurance provider. The 150-person centre will mainly do compliance related work for the insurance provider. But it can be leveraged for other deals too.
“In this case, it was more of a regulatory requirement, but we have instances where the client preference is to do the work in the US,” Mr Kapur said.
“Where the nature of work is complex, where it requires physical verification and where there are associated security aspects — these are instances where work will be done onshore. This is also a reflection of the fact that the BPO industry is moving up the value chain. Initially, onsite revenues may not be a very significant percentage, but if you look at it as a percentage of the new processes coming in, it will be significant,” said out Alok Shende, principal analyst at technology research firm, Ascentius Consulting.
An official from BPO firm Firstsource Solutions, points out that as opposed to high street banks or large MNCs, healthcare providers are extremely conservative and business is often relationship based. “Even large US insurers are wary of new entrants,” the official said. Firstsource, an early mover in the healthcare provider segment through its MedAssist acquisition in 2007, has facilities in Kansas, Colorado, Kentucky and Miami.
Opportunities such as those emerging from the US Healthcare Bill may mandatorily require sensitive information pertaining to patient records to be within the country, and if BPO firms don’t have onshore facilities, they could risk losing the business. Reasons such as these and concerns about job losses are guiding BPO providers decisions to start onshore facilities.
“Even if some revenue is high cost, it drives long-term growth. So it is okay,” said Mr Murugesh about the potential impact onshore hiring would have on profit margins of BPO firms. He also views this as a two-step process, where work is first outsourced to an onshore location and then offshored with increase in customer confidence.