Apparently, the globalization of services mostly involves American companies relying on Indian companies to get business process work done. At least, that’s what I concluded after attending a fascinating conference at Stanford University last Friday on the topic.
Hosted by Rafiq Dossani, a senior research scholar at Stanford’s Asia/Pacific Research Center (APARC), the gathering attracted academics and service providers to share their thinking on country focus (mostly India, though with a smattering of the Philippines and China), industry (BPO and IT), business models (captive center vs. build-operate-transfer vs. good ol’ fashioned outsourcing under contract), facilitators (legal issues vs. legislative efforts vs. recruiting efforts) and “the future of Silicon Valley in a Globalized World” (featuring author John Hagel and high-powered reps from HP and TCS).
Over the next several days I’ll share what I culled from the speakers.
Keynoter Akshaya Bhargava, managing director and CEO of Progeon, a BPO and IT service provider, pointed out that India-based business process outsourcing “is a miniature industry — it makes noise disproportional to its size… but what everyone has [their] eyes on is what it could be.” What it could be, he said, was 20 times larger than the current software industry in India.
Currently, he said, it generates $5.2 billion in revenue, up from $3.7 billion a year ago. It’s roughly doubling in size every other year. It employs 350,000 people there and the top 20 companies generate three quarters of the revenue. The rest of that revenue is divvied up among 300 other companies, which makes it, he pointed out, “a very fragmented industry.”
At the current rate of growth, Mr. Bhargava said, the industry will be at 1.4 million people by the end of the decade, “which doesn’t sound so large when you’re taking a country as large as India.” (He quoted somebody else who had said, “If you’re one out of a million in India, that means there are 1,100 others of you.”)
He also pointed out that those million-plus workers were going to need 350,000 to 400,000 supervisors. And behind it is a secondary BPO industry, consisting of lawyers and accountants and contractors and caterers — which is two times or three times the size of the original business. That means the $5 billion industry is actually a $15 billion industry creating a million jobs.
Likewise, managing the scale becomes an “exercise in logistics.” He explained that one contract requiring 13,000 new hires generated 1.4 million job applications. Getting “BPO-ready” people on staff is a challenge. Recently, he participated in an event to train 114 Indian professors on what they need to be teaching to make their students ready to work in the real world.
There’s a sociological impact taking place too. New graduates start working in an office, it’s in an environment that’s second to none, they’re held to standards higher than those held by the customers themselves for their own people, and they’re acquiring global skills without leaving India. Plus, they’re going to be the major consumers of tomorrow. The full effect of what’s going on now won’t really be evident, he believes, until 10 years from now.
What needs to happen for that growth to continue, Mr. Bhargava said, is that the providers of the services need to move “from being order takers to being heart surgeons.” That involves being in a position to be able to tell the customer precisely what is going to happen at every step of the job — what they’re going to experience and why — and being completely in charge. Along the way, the transaction becomes about more than just cost arbitrage. Progeon’s first customer, he said, moved 400 jobs into Bangalore. Now, that same work is being handled by 230 people, as a result of continuous process improvement.
As a last note, Mr. Bhargava said he doesn’t believe the captive model of operation, which is followed by 200 companies in India, is sustainable. The real reason they’re set up, he said, is because “it’s an easier sell to internal people.” But the fact that a captive is limited to serving the needs of its parent company means it can’t attract “the management they need to grow.”
