It is no news that the business process outsourcing (BPO) industry in India is growing at a phenomenal pace. But Indian BPO costs are rising as salaries and expectations also rise. In the years ahead, Indian BPOs may just lose their cost advantage, and outsourcers will be forced to lower-cost locations.
India may witness a shortfall of a half-million people in the BPO industry by 2008, according to an estimate by management consultant McKinsey & Co. In response, the BPO operators have followed the course charted by contract manufacturers and begun to invest heavily in process automation, replacing labor (which tends to get more expensive over time) with hardware and software (which tends to get cheaper over time, so long as the underlying processes don't change too fast or too much—and many back-office processes don't).
These initiatives are designed to help BPOs cut costs and do more with fewer people, boosting revenue per employee significantly, from about $14,500 annually at present. Companies recognize that automation processes to be used in BPOs can't just be lifted straight from the manufacturing sector. But while it might be difficult, it is something that needs to be done, industry players feel.
In the past, automation and lean practices helped Japanese automobile companies develop an edge over U.S. car companies, an advantage that companies such as Toyota continue to maintain. It's now time for BPOs to do something similar, industry players say.
About the author
Uday Lal Pai, firstname.lastname@example.org, is a freelance writer and editorial consultant based in India.