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Print This Page Ramesh Damani tracks the evolution of Indian BPOs Benjamin Franklin used to say, he profits most who serves the best. Ramesh Damani, on his CNBC-TV18 show RD 360, takes a circular view of Indias booming business process outsourcing (BPO) industry as it tries to serve the worlds best. Damani speaks to Noshir Kaka, Director, McKinsey & Co; Jim Foy, President, CEO and Director of Aspect Software; and VK Raman, Global Head of Operations, TCS BPO. Here is a verbatim transcript of their exclusive interview on CNBC-TV18. Also watch the accompanying video. Q: Bing by Microsoft, Xeon 7400 chip by Intel, Googles Map Maker. What do they have in common? Kaka: It is very simple. A very substantial portion of their development was actually done out of India. That is the power of this industry. We have seen this industry mature over the last 10-15 years before our eyes. In the early days, we were largely taking processes and services that were done somewhere else and essentially replicating them in low-cost countries. What is really exciting about what is happening today and I suspect even more as we go into the future is we are no longer talking about actually moving up the value chain but it is actually getting done here. We are developing products and services here in India and in other low-cost countries that serve the rest of the world. Q: So, the moniker, the low-cost, low-margin, low-skill business is a misnomer? Kaka: It has always been because if you look at those three monikers, low-cost certainly, I would say effectiveness and efficiency was very high, but when you talk about actually the quality of service you look at customer satisfaction ratings, you look at just the sheer demand coming still into a country where even though we can talk about being depressed at a 4-7% growth rate, it is a growth rate as opposed to the rest of the sectors that are actually in decline. So, that moniker was actually never really applicable. I dont think any of the leaders in the industry had that in the back of their minds when they started. Obviously everyone has to start with a value proposition, most industries start with a value create proposition on price. But it has never been low-quality. It has always been much better effectiveness, much better efficiency. Q: A contact centre job in America was considered low-end, low-skill. But in India it is an aspirational job? Raman: The way it develops is you need enough people to be able to provide adequate customer service. So, if you have a situation where demographically enough people are not available and they do not want to do the contact centre job as a career whereas on the other hand in India you have graduates who are looking for a job, who want to be interacting with international markets. So, from that standpoint, it became an aspirational job initially. But of course, BPO has moved on substantially after that and contact centre is now seen as a commodity and low-end as opposed to the many other things that the BPO industry is doing. Q: What brought you to India? Was it the quality, talent, cost, or the supplier necessity? Foy: There is enormous talent in India. That is the first thing. The second thing is that the cost certainly has to be considered as a serious factor initially. But as Mr Kaka said, that is history. What has happened now is a great deal of innovation, a great deal of progressive thinking around technology generally but around a contact centre in particular and it is now a vital, vibrant, growing and continuing to grow at phenomenal rates industry in India. So, how could that not be an aspirational career path for a great many people? Q: What can be offshored has changed dramatically? There used to be a gap of what you could do onshore and offshore. But that gap has narrowed tremendously? Kaka: That is absolutely correct. Every time we take snapshots of what is actually possible to be done in a low-cost geography or frankly globally, and when we did that in 2005 we found that to the best of our estimation that market worth was about USD 500 billion. When we just recently redid it for NASSCOM in a partnership with McKinsey, we found that that number has actually gone anywhere upwards of USD 1 trillion, globally. So, you have seen in a space of three-four years by our own estimation, however crude they may be, a doubling of the addressable market at the very least. At that same point in time, India has grown: we are now totally about USD 47 billion give or take a few in terms of exports. USD 47 billion to USD 1 trillion, that is the addressable market gap. Q: Why is this happening? Are you seeing this at the ground level, bigger ticket items you are getting, bigger contracts of BPO work in TCS? Raman: We certainly are looking at bigger ticket items, bigger ticket contracts, deeper end-to-end work, and more willingness to try new areas that have not been tried before. For example, let us take financial planning and analysis. It used to be thought of as a very high end work. Then we did a study of what actually happens in the day of a financial planner and analyst. 22 days in a month and then he or she looks at the computer terminal and is cranking up what-if scenarios etc, and is participating in meetings with senior management, understanding what are the business aspects that need to be analysed. About 20% of the time you need to be onsite with the business manager. The remaining 80% of the work is actually modeling; simulation and it can be done by somebody who doesnt have to be at the same site. So, if you start analysing the work, you can actually look at any activity that can be pared down to its bare bones. What need not be carried out at a particular location can be carried out from a remote location. We have more accountants. US President Obama is now talking about the fact that you have to emulate Indian graduates etc. So, from that point of view, mathematical capability has always been a strength of oriental as well as Indian people. So, I think it is quite conceivable that more work will come to India. Continued on next page _PAGEBREAK_ Q: Former Chairman of Hindustan Lever Dadiseth used to say that what oil is to the Middle East, BPO, software and services are to India. Would you agree? Kaka: I think so. If you look at this sector, I wouldnt call what we are going through right now is bliss. But if you look at the last 10 years, most people dont realise what this industry has contributed to India. When you look at the number of urban jobs created in India, this IT and BPO industry has created nearly half of the urban jobs directly and indirectly in India in the last 10 years. It has contributed to the growth in educational capacity. In the six or seven states it is operational in, they have grown seven times faster than the rest of India. Not to mention the Forex and the economic advantages we know of. If you look at one industry that had made such a contribution in Indias development, this would stand out as one of them. Q: It employees more than the Indian Railways, the industry as an aggregate? Kaka: Yes. Q: Is this basically an American idea, BPO industry and offshoring? Foy: I dont know who can take credit for creating the opportunity. But the opportunity most certainly exists and clearly the US has taken huge advantage of this. BPO as a concept is here to stay. In fact, realistically we can see that it is a global issue now or a global opportunity. Q: Would that have happened if Hillary Clinton had become President because she said, neo-source, dont outsource? Foy: While I cannot possibly comment on that precisely, except I would say that at various points in times, this subject has more or less political sensitivity, ultimately, business imperatives will always prevail and in terms of value and in terms of cost, the value-cost equation has to work, and it most clearly does in this case. Q: You said the Nano is an example of a metaphor for the BPO industry. Explain that to me? Kaka: Put it simply, what has happened in the BPO industry over the last 10-15 years, not to take away any credit, but it has largely been replication of what has actually been done. What we are seeing with the Nano and the other products we talked about is frankly the first set of products that are designed in low-cost countries for the world. So, you are not just replicating what has been done. You are actually developing new products and new services. Nano is by far the biggest example. Q: Would you agree with that? Raman: I think so. Value does not mean high price. Value means meeting the needs of a particular customer or consumer. So, there are many examples. In India, we are making profits on a Rs 300 RPU per connection and so on. So, it is possible to come up with a value proposition at really low costs without compromising quality. I definitely agree that that is possible. Q: But these products wouldnt get done if India was not a sourcing base. Something like a Nano or a Google Map Maker would not see the light of day? Kaka: I think somehow you would have found that innovation, somebody would have created and so it is not to say that India is the only place that it would have got done. But certainly the constraints of the Indian market force that type of creativity and that kind of innovation. You had to develop it. It is not that nobody tried to develop a USD 2,000 car before. Many of the global majors tried several years. It just was not possible in the mindset that the engineering teams had at that time to design a car at that price. The Tatas have proven that you can do it. Continued on next page _PAGEBREAK_ Q: What are the challenges ahead for the BPO industry in India? Andy Grove used to say only the paranoid survive. Should we be paranoid? Kaka: I think it is a very good analogy. Today, India is in a good position. But our position and market share is I wouldnt say under threat but I would definitely say if we stay where we are, we will not capture our aspiration when we talked about innovation or any of that. I would give you two or three big challenges facing this industry. I think in the near term there is definitely a political and regulatory challenge. Everybody sees it. While we can talk about longer-term demographic trends pushing in this favour of outsourcing and offshoring, for example job loss in North America and things like that, we have to be cognizant about those. Those are real issues and they are not going to go away overnight. That is one. Secondly, when you look internally or at the supply side, we still throw out far too little graduates who are qualified when you look at the education they have given. India produces anywhere statistics tell us between 2.6 million to 3.1 million graduates. We can use about 12% or maybe 14-15% of those for this industry because a large proportion of that education is somehow not effective. If you look at our infrastructure, we have largely concentrated on six-seven industries, again from a talent perspective, because these are talent magnets. We find that infrastructure in these cities are completely crumbling. You take transportation, communication, and power. There will be a time when clients and companies

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will find that this is too much of a cost to bear for business. Q: How difficult is it to recruit people at TCS BPO? Raman: There is talent shortage. The finishing process of graduates coming out of our education system is currently being undertaken by the BPO industry or the IT industry itself. That is a significant cost layer on top of the basic service that we are providing. For example, Mr. Kaka talked about 10-14% of people are employable straightaway. That is only one portion of the challenge. The other portion is BPO requires day-to-day management and monitoring. There is a huge shortage of middle management gap, which has got to be developed only over time. It cannot be developed overnight. You cannot send them to a three-week executive development programme and bring them back to deliver a globally-minded, problem solving-oriented or consulting-oriented mindset, where you have to imagine the problem where you are not sitting with the customer. You are talking on the phone and you are trying to understand what the problem and then you are trying to solve it. So, the middle management talent is a very big challenge. We need to continue to invest in that area. Just to go back to the comment on the political aspect and overtones of protectionism etc, in the 1960s and 70s there used to be inroads into the auto industry from the Japanese. Eventually what ended happening is the quality of auto industry went up substantially not only in Japan but in the US as well. Actually Japanese carmakers ended up setting up plants in the US and started hitting the ball out of the park in terms of quality. That helped to some extent. You are seeing what is going on in the US auto industry. So, these protectionist overtones are short-term in nature. In the long run value will prevail. Q: Protectionism wont work though. Information wants to be free. So, people are going to find a way. Kaka: Most people, even most governments recognise that. Economic trade benefits every single country, both the sending and the receiving. We have seen that over decades of history. But today when you are faced with rising unemployment there is always the pull of short-term versus the long-term what you know as benefit. That is what you are working through. The governments across the world know this, which is why they have been so thoughtful in terms of their actions and frankly not stopping it much sooner. Frankly, they are doing their jobs. Q: You wrote the prophetic report on the BPO industry. It is amazing how accurate that turned out to be. Look ahead five years, how big is the industry in India going to be, how many people it is going to employ and its impact on the Indian society? Comment on that? Kaka: We have looked at it for a slightly longer timeframe. So, right now if you look at the BPO and IT put together, it is roughly about USD 47 billion. We see the potential for that industry to go to about USD 225 billion by 2020. Approximately 60% of that will be BPO. So, interestingly, BPO will overtake IT if we get our act together. In terms of society and job creation, it will be one of the greatest job creation engines this country has ever seen. It will employ at that time about 12 million people, which is fantastic. Q: Six times the current employment in the next 10 years? Kaka: Six times. Yes. Q: There is a huge social velocity. They will be buying houses, consumer durables; in fact we are going to create a whole new middle class? Kaka: You look at construction, retail or commercial construction, what has happened is that it is an unwritten fact about this industry that this industry is the anchor tenant for 60% of commercial real estate in the country, which I think is absolutely true. Q: That is to GDP growth. That is adding how many points to GDP growth? Kaka: If you looked at it, it will actually add about incrementally 15-17% of Indias incremental GDP growth going forward. It is a massive number. Q: Do you share his enthusiasm with the numbers, 12 million, USD 100 billion+ opportunity? Raman: I used to joke about McKinsey and Mr. Kaka set the target and we work hard brick by brick to make it happen. So, while the targets are good, we need to make sure that we prove every time we engage with the customer, we make sure that their business objectives are met, execution is the key. Q: The McKinsey report also suggested that within a five-hour flight of Bangalore, 60% of the worlds population lives. So, Bangalore is the heartbeat of the BPO industry. Would you agree? Foy: Yes, I would. That was the reason we set up the technology centre in Bangalore. I would say about this industry, the bar has been set high and it is going higher. The point is that the quality of service will go on increasing and the demands will go on increasing. India has a really strong position, a preeminent position in BPO. Other places are nipping at the heels of this business. The way you keep ahead is to continue to chase that higher bar and that is through innovation. There is absolutely no reason why those kinds of very aggressive growth objectives that we have been talking about will be possible.

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