Date:11/12/2006 URL: http://www.thehindubusinessline.com/2006/12/11/stories/2006121101070200.htm

Back `BPOs in tier 2, 3 cities not feasible for MNCs'

Priyanka Vyas

Some regions outside India more favourable, finds study

Potholes
Increased investment in training, infrastructure creation and management support can offset savings.
Smaller graduate pools and lower skill level result in extremely small target group.

New Delhi , Dec. 10

Despite the cost advantages, it may not be feasible for MNCs to set up BPO operations in tier two and three cities in India, a study by consulting firm, Everest Group has found.

Traditionally, labour shortage and high attrition rates in the bigger cities have been considered to be the primary reasons for BPO companies to spread their wings in smaller cities. But for international players seeking to enter the country, tier one cities would be the preferred route to start with, the study has found, primarily due to the challenges and high costs associated with locating/training workers.

Challenges

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, Indore. The study warns that tier 2/3 cities pose significant operational challenges and risks for MNC players because of three main reasons.

This includes issues related to labour pool availability for MNCs given their stringent requirement for BPO experienced talent, MNCs which have adopted the strategy of recruiting highly skilled manpower spending more time to market and reducing cost of training, and given the demand for ready-to-go talent and high selection bar, the conversion rates is traditionally lower than Indian players.

According to the study, smaller graduate pools and a lower skill level given the lack of appropriate training, exposure to western culture, low fit with `MNC employee profile' results in extremely small target pool. Everest estimates that if a large player like Genpact or WNS were to set up an operation in Indore for transaction processing, it will become difficult to sustain another large player.

Other countries

It is also relatively more difficult for the global management teams of MNCs to adapt their operating model to the needs and requirements of operating in a tier-2 city in India. In comparison, Indian providers have, over the years, adapted their operating strategies to succeed in this environment.

Give this scenario, Everest finds that MNCs are more comfortable growing in other regions of the world (such as Latin America or the Philippines) rather than expand to tier 2/3 cities in India.