Australia - Sourcing cheaper staff the new growth industry

FIFTEEN years ago Gurgaon was little more than a highway stop on the outskirts of the Indian capital, New Delhi. Now it has dozens of shopping malls, seven golf courses and a forest of office blocks.

Gurgaon has been built on India's internet-age outsourcing sector. The city's heady, unruly rise is symbolic of the rapid growth of the industry. The country's biggest outsourcing firms are housed in Gurgaon, many in futuristic-looking buildings. They are easy to pick because of the huge satellite dishes on the roof.

The staff service clients around the world, doing things as diverse as collecting debts from credit-card defaulters, managing drug research data for pharmaceutical companies or analysing companies listed on Wall Street.

At the Gurgaon office of India's biggest outsourcing company, Genpact, the cafeteria is filled with smartly dressed young people with iPhones and security tags who talk of working the ''London'' or ''Sydney'' shift.

Their well-appointed work stations would not be out of place in Sydney or Melbourne. But one thing is very different: the cost of their labour. Salaries for an English-speaking, university-educated worker at Gurgaon's outsourcing companies start at about 20,000 rupees a month - less than $5000 a year. And they have counterparts in many low-income countries across Asia, Africa and South America.

The offshore outsourcing industry started to take shape in the mid-1980s when several US multinationals including Citibank and GE Capital established operations in India to capitalise on the large number of well-educated engineers in that country who demanded relatively small salaries compared with their rich-world counterparts.

''Multinational companies started to see the potential a place like India had, especially in IT,'' says Sydney-based Sri Annaswamy. ''The idea was very simple: you could get top-quality engineering talent that could beat the world for a fraction of the price that you would get in mainstream American markets. That is basically the arbitrage.''

Advances in communications technology during the 1990s, especially the internet, made outsourcing much cheaper and easier, and the range of activities being outsourced expanded into areas such as financial accounting and customer services, especially call centres.

These new ''business-process outsourcing'' ventures - or BPOs as they are known - took off and a swag of Indian IT entrepreneurs got involved.

More recently, the range of services outsourced has moved up the value chain from business processing outsourcing to ''knowledge-process outsourcing'' - or KPO - including financial research, actuarial services, high-level accounting, and legal services.

''Many firms, especially investment banks, eventually discovered there was huge capacity for analytical work to be done in India,'' says Annaswamy. ''They could hire Indian MBAs who were a lot smarter and a lot cheaper than guys coming out of Ivy League schools.''

Most Australians are oblivious to the scale and sophistication of the global outsourcing business, estimated to be worth about $US3 trillion ($A2.82 trillion) a year. Some BPOs have developed into major international businesses with expertise in managing complex business processing.

Genpact has annual revenue of $US1.26 billion, employs 53,000 people in 17 countries and is listed on the New York Stock Exchange. National Australia Bank is among its more than 600 clients.

The outsourcing industry now holds an important place in the Indian business landscape. The proportion of India's gross domestic product generated by the collection of businesses known in India as the ''IT-BPO'' sector grew from 1.2 per cent in 1998 to 6.4 per cent last year, industry group Nasscom estimates.

BPOs and its sister IT sector have come to symbolise a new India marked by rapid growth and innovation. Millions of young Indians aspire to the relatively high salaries paid by BPOs and the lifestyles of their workers.

Outsourcing firms now feature regularly in Indian popular culture including Bollywood movies and television shows. Best-selling author Chetan Bhagat sold more than 1 millions copies of his novel One Night @ the Call Center about six colleagues who sell home appliances from Gurgaon to US customers.

India remains the biggest player in global outsourcing, but it faces stiff competition. The Philippines has attracted call centres, many of them set up by Indian BPOs seeking lower costs. Industry analyst Dataquest says call-centre agents deployed by several Indian BPO firms in the Philippines surpassed the corresponding headcount in India in 2009-10.

Other low-wage Asian countries including Indonesia, Bangladesh, Pakistan and Vietnam have fast-growing outsourcing industries. Improvements in high-speed broadband have also spawned industries in several African countries, including South Africa, Egypt and Kenya.

India's long experience in internet-based outsourcing and its talent pool mean it has an advantage over smaller countries. But several Chinese centres, such as Shanghai and Chengdu, have the scale, expertise and talent to give the Indian outsourcers a run for their money, especially in the knowledge-processing market.

Competition between outsourcing destinations promises to put downward pressure on costs. That will only increase the inventive for Australian companies to send jobs overseas.

Matt Wade

The Sunday Morning Herald

Business & Investment Opportunities

YourVietnamExpert is a division of Saigon Business Corporation Pte Ltd, Incorporated in Singapore since 1994. As Your Business Companion, we propose a range of services in Consulting, Investment and Management, focusing three main economic sectors: International PR; Healthcare & Wellness;and Tourism & Hospitality. We also propose Higher Education, as a bridge between educational structures and industries, by supporting international programs. Sign up with twitter to get news updates with @SaigonBusinessC. Thanks.