Monday, July 27, 2009

Kollumangudi - Pointers to the future


It was almost 9 pm on a rainy night at we entered the Desicrew's Rural BPO delivery center at Kollumangudi, near the town of Mayiladuthurai. With helpful directions from the staff, we could wade through the rains and the darkness to reach the center. I was pleasantly surprised to see that many of the Crew members were young women from nearby villages/town and in spite of the professionalism expected out of BPOs, they were probably sending out messages for the future. It is a well organized center with separate bays for different processes and one could not see an airconditioner reflecting probably the low cost, spartan model espoused by Desicrew. Attempts have certainly been made to elevate the quality of delivery and today it even has an online process supporting customers on realtime basis. Interaction with young minds always stimulates the thinking and when one spotted an MBA and two engineers among a sample of 15 people, one does ponder about the shape of things to come in the future.

Rural BPOs are in the news again after HDFC’s decision to acquire a 26% stake in one of them. It has been in the making for a few years now with some exceptional success stories including the one I was associated with – GramIT. We had an interesting mix of models being presented at the first national Rural BPO conference hosted last year at Hyderabad. It included a few kiosks doubling up as rural BPOs, centers running from homes, centers with ISO/Six sigma project certifications, centers run by Government, all women centers etc. With Kiran Karnik, former chairman of Nasscom, providing the keynote address and a list of eminent speakers from corporates of the likes of Tatas,CISCO,Wipro,HSBC,HDFC, it provided a platform to exchange views and chart out future strategies. Some of the predictions made during the conference are unfolding right now and 2009 and 2010 are going to be two watershed areas in their evolution.

Parallels are being drawn between the rural BPOs now and the IT sector in the late 80s/early 90s in terms of potential to alter the employment landscape, lack of infrastructure, customer skepticism, lack of availability of trained manpower, wage arbitrage etc. While there could be some lessons, in my view, the crucial difference is about the integration of domestic IT/BPO market. The IT sector had an almost exclusive focus on the export market till recent times, which had a significant impact on the margins for years to come. Because of current excess supply in the BPO segment and the focus on domestic customers and Governments, the rural BPOs are going to be under pressure for their margins almost from their birth stages. This would be a key factor during the scaling up process and they would do well to focus on their core strengths, which is unleashing the human potential. In the short term, cost will be the differentiator, but they can quickly build their IPs around their geographies. It is not about generating local data bases which can be sold to some MNCs, but creating a knowledge driven system which integrates the local political system, economy and relationships. For example, their skills have to evolve to aid or deliver what organizations like Census department or NREGA team or the local engineering/medical colleges might need. Knowledge about the local village and its ecosystem itself is a vital ingredient. In the continuum between the information kiosk and a commercial BPO delivering to an export market, the players should be cognizant of this space as well.

Consider the economics for potential of Rural BPOs in terms of employment and revenues :

A center of about 50-75 seats can be set up to cater to the available labour pool for every 20 villages. This will create about 4 million rural employment at an average wage of over Rs.4000 per month for the entire year and impact about 20 million rural people directly.
To put this in perspective, compare this to NREGS : Average 45 days of employment @ Rs.80/day (ok.. it is now Rs.100/day) created in the last three years for 20 million households. Only 4 million households have managed the mandatory 100 days. Amount spent was over Rs.40,000 crores ! Even the entire BPO industry's employment is hovering around 4 million mark after two decades.

Is there a market ?
The total PBT of Corporate India is reported at US$142 bn for 2007-08. If we can estimate that the profit margin will be atleast 15%, then the expenditure on processes like Customer care, HR, Finance which can be outsourced will be atleast US$40 bn (5% of total expenditure). Of this total pie, even if we assume a tiny market share, say 2.5%, for the rural BPOs, it is still over US$ 1 bn.

So, what can the Government do ?
Allocate a major portion of Rural Development Budget and work out another subsidy for attracting corporate investment ? No. It can easily use a portion of its NREGA budget (5.8% to be precise of budgeted Rs.39,100c r) and convert that into equity/mezzanine finance. Since Rural BPO has been proven as a commercial model, it will attract both debt and equity from the investors and with a leverage of 1:3 or 1:4, we can do this across the country. And to kick start the whole process, it can mandate that every department will outsource atleast 1% of its work to rural BPOs, which itself will be more than the domestic corporate demand. This is not going back to ‘reservation’ days, but leveraging Government’s reach and capacity in a new way, as there will be a saving of 25%-30% for every rupee outsourced.

On the other hand, it may not be appropriate to derive the budget from NREGS, as the focus of the scheme is different from the labour pool likely to be relevant for the Rural BPOs. But it is the same geography we are talking about. There was an announcement in the previous year’s budget about National Skills Development Corporation with an equity of Rs. 1 cr from Government of India and a corpus of Rs.1000 cr. This project could easily become a launch vehicle for the NSDC, as it also envisaged raising funds to the tune of Rs.15,000 cr from the market.

1 comment:

  1. Krishna V R MuppavarapuAugust 3, 2009 at 4:51 PM

    Hi Mani. that's a terrific analysis and seems to be quite workable. I have always maintained that with government as a key player, anything is possible. I presume most of the advancements, technological or otherwise in developed countries happened at the behest of their governments. The same applies to the rural BPO scenario as well.

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