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Business Challenges for KPO/ BKO/ BPO in India
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High Marketing Costs:
BPO industry consists of large as well as small firms (with less than 300 employees). The major weakness of these smaller BPOs is the high marketing costs. These costs are mostly incurred while searching for new market opportunities. Further, a need to have onsite offices adds to the costs. These costs prohibit emergence of new BPOs.
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Smaller BPOs have explored subtracting of work from larger BPOs as a revenue alternative. However, unlike manufacturing sector, a lack of onsite presence of the firms coupled with quality concerns of subcontracting of work add to challenges faced by such organizations.
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High Attrition rate and Training Costs:
Higher attrition rate and poaching are other weaknesses of the industry. Though India has graduates with a good command on English but it is difficult to find skilled and qualified personnel. This paucity of skilled workers adds to recruitment and training costs. Further attempts towards poaching of qualified personnel have increased. According to NASSCOM, this problem is seen as a major factor is decreasing global competitiveness of India’s outsourcing industry. NASSCOM estimates a demand-supply gap of trained personnel to the tune of 206,000 in 2010. This lack of qualified personnel has lead to increase of salaries of trained professionals due to which the country is losing its low-cost advantage. Cost advantage of off-shoring to India has reduced from 1:6 to 1:3. This talent crunch has lead to increased poaching as can be seen by significant movement of middle and senior management level personnel between jobs.
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Lack of infrastructure:
Lack of infrastructure facilities (particularly in Tier-2 and Tier-3 cities) such as transportation, power, and internet bandwidth have created strong bottlenecks in the industry’s growth. BPO/BKO industry has been unable to grow into Tier-2 and Tier-3 cities. Movement of business from a Tier-1 city such as Bangalore to a Tier-2 city such as Mangalore can save up to USD 0.4 per year for a 1000 employee company in terms of employee salaries.
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Nature of work:
Physical strain from work, unconventional working hours, and detrimental effects on personal life are other factors that have lead to decreased attractiveness of outsourcing services among working professionals.
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Ease of doing Business:
Launching a business in India is another challenge that is faced by the industry. The long approval processes in India take twice than it takes in China, and 12 times than in Singapore. Such lag of time can lead to loss of competitive advantage of India’s outsourcing industry.
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High Costs of Telecommunications:
Though India’s telecommunication costs have reduced but these costs are still higher than those in most the competing countries. Telecommunication facilities are rapidly getting liberalized in countries such as Philippines, and China.
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