India: back office to the world - a discussion of the development of the Indian economy, which is focusing on office operations

Contemporary Review, April, 2003 by Alex Ninian

COMPETITION in industry and commerce all over the world is increasing despite, and perhaps even because of, the proliferation of mergers and acquisitions and the creation of global giants. The relentless and mounting pressure of competition in the marketplace continues to drive a never-ending need for companies to reduce costs and keep them to a minimum.

Over the last 25 years this has led to businesses in developed, mainly Western, countries transferring manufacturing operations to lower-cost centres, usually in Asia and the Far East.

Now the same pressures are forcing managements to look at transferring office operations in the same way, and they are finding that such a task is being facilitated by the continuing developments in computers, information technology and communications. The first international outsourcing developments involved Ireland and Australia and to some extent Holland because of their infrastructure and their pool of educated labour as well as their use of the English language but this has become largely outdated because of the very limited cost advantage they offer. Now attention is focussing on India, Sri Lanka, Malaysia, the Philippines and even China. These all offer labour and other cost savings, but the other criteria of infrastructure, education and, particularly, English mean that India is far and away the favourite location for this burgeoning and lucrative business. The size of its foreign outsourcing operations is larger than all its competitors put together. With its millions of educated and English-speaking people, India is emerging as the back office of America, Britain and the Western world.

If you think cotton, tea and rice when you think of India, think again. Now think call centres, help desks and credit card servicing. This is the 'sunshine sector' of the Indian economy and is the fastest growing industry in the country.

It began with back-office work for Western-world insurance companies, stockbrokers and banks where the direct customer contact and the front office was in the US or UK but the calculations and data handling were done at the end of satellite lines in Delhi or Mumbai. But now much of the front office operation is in India as well. American or British customers who ring a local bank number in Denver or Manchester could well find that they are answered and satisfactorily dealt with by a trained operator in Bangalore, in many cases without the customer knowing that they were not being dealt with locally. Some American companies even train their Indian operators to speak with an American accent and to comment on the weather in the caller's area.

American companies even train their Indian operators to speak with an American accent and to comment on the weather in the caller's area.

As already mentioned, the main bases of success are language, education and cost and in this regard India produces some two million graduates per year who speak English, many of whom are qualified in accountancy, computer studies, business and commerce. Basic salaries for bottom-of-the-scale operators might be in the region of $2,000 to $3,000 per annum, but the economics of the issue is based on 'fully loaded costs' which means not just the salary of the operator but the cost of his or her office, holidays, pensions, insurance and social costs, sick leave, computer time and secretarial and other support. Many analysts of the scene report that fully loaded costs in India amount to about one third compared with like-for-like workers in the West.

Types of Operation

A general description of what these centres do would include loan enquiries, credit card work, accounts reconciliation, the processing of insurance claims, bank transactions, invoicing, collections, and even cheque writing.

More than a quarter of the Fortune top 500 companies in the world are doing this kind of work in India, including British Airways, American Express, Citibank, HSBC, GE and AT&T.

The field is also attracting the attention of analysts and consultants who can sell advisory services to the growing number of organisations interested in the trend. Reports have been prepared by McKinsey, KPMG, and Deutsche Bank, among others, and these have been used as sources for some of the information used here.

The main category is Customer Care which includes the familiar call centre activity and help desks, but also covers sales data and back-up for field sales people who, in turn, deal with customers.

Human Resources and Payment Services are developing very fast -- a field which includes employee records and data, payroll handling, and cheque processing -- and could even overtake Customer Care in the foreseeable future. Finance and Administration is another area where the cost factor is most important and operations in data analysis, insurance claims, inventory management, as well as a range of accountancy operations are being transferred from the West to India on a daily basis.

The next stage of advance is in higher-level work where low cost will still be a factor but the need will be for intellectual, value-added services where the scope is huge and already a start is being made in providing remote technical research and development, computer systems development and computer systems maintenance.