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Indore calling? Not yet, says study

EVEN AS the State Government is projecting Indore as a future IT hub, a recent study by a consulting firm has found that it may not be feasible for MNCs to set up business process outsourcing (BPO) centres in tier-II cities like Indore and Jaipur despite the cost advantage.

india Updated: Jan 07, 2007 17:41 IST

EVEN AS the State Government is projecting Indore as a future IT hub, a recent study by a consulting firm has found that it may not be feasible for MNCs to set up business process outsourcing (BPO) centres in tier-II cities like Indore and Jaipur despite the cost advantage.

Plagued by high real estate cost, labour shortage and high attrition rates in metros BPO companies are looking for new avenues to bring down the cost of operations and, as a natural corollary, spreading their wings in smaller cities.

However, the study conducted by Everest Group has found that for international players seeking to enter the country, tier-I cities would be the preferred route to start with, primarily due to the challenges and high costs associated with locating and training the workforce.

Everest Group provides strategic advisory services to companies worldwide in the field of IT and outsourcing. Established in 1991, the Group has offices in the United States, Canada, India, United Kingdom, and Australia. And it also carries out surveys and researches for companies from time to time.

The increased investment in training, infrastructure creation and management support can offset savings, despite the experience of the Indian BPOs showing savings as high as 20-30 per cent in cities such as Jaipur.

The study warns that tier II and III cities pose significant operational challenges and risks for MNCs because of three main reasons. This includes issues related to labour pool availability for MNCs given their stringent requirement for BPO workforce.

Traditionally, MNCs have adopted the strategy of recruiting highly skilled manpower, reducing cost of training and spending more time to market.

According to the study, smaller graduate pools and a lower skill level, given the lack of appropriate training and exposure to western culture, results in extremely small target pool for MNCs.

Everest estimates that if a large player like Genpact or WNS were to set up an operation in Indore for transaction processing, it would become difficult to sustain another large player. Genpact is already setting up a large BPO facility in Bhopal and has plans to expand to Indore in the future.

However, MD and CEO of Firstsource Ananda Mukerji was of the view that tier II and III cities hold distinct advantage in some of the areas. Replying to an e-mail query, he stated, “Currently Firstsource is present in Trichy and Pondicherry among the tier III cities.

In general we find second and third cities are very well-suited to delivering back office services like document processing, database management etc.” On the flip side, Mukerji added, “There is a shortage of talent for customer services capabilities particularly for the international market but also for English-language domestic services.”

NIIT Technologies divisional manager Gaurav Sood was also of the opinion that tier II cities are attractive for BPO, which is a predominantly people-driven industry.

“Today the tier II cities in India are growing rapidly in terms of generic economic environment and allow establishment of varied industries. Fact of a big company already present only adds credibility to a feasibility story and newer MNCs can set up operations. The challenge is in terms of creating the right size that the specific city can support,” he stated responding to an e-mail query.

On why Indore had failed to attract BPO companies so far, Sood replied, “So far most companies have been establishing themselves and operating in the larger metros because of the ease of setting up establishments and familiarity with the cities. Going to tier II cities has been perceived as more expensive in terms of management because of the availability of talent and infrastructure in the metros for limited scale. However the attractiveness of tier II cities comes up higher where the scale required itself becomes a challenge in the larger cities.”