Global Economics

Infosys, Wipro Focus More on Outsourcing in Rural India


With global demand falling, the Indian IT powers are looking to capitalize on growth in local outsourcing

NEW DELHI: Indian tech majors Infosys Technologies and Wipro are set to enter the booming domestic back-office service market, multiplying by more than one-third every year, and join a tech revolution happening in rural India.

Infosys BPO, the $316-million back-office service arm of Infosys, plans to tie up with service providers with shops in rural areas and small towns for its domestic operations, company officials said. The revenue-share model will see Infosys getting the customers and the rural operators doing the service. The $395-million Wipro BPO too will enter the domestic market soon. It already provides technology and other supports to a few rural service providers and may also explore service delivery tieups with them, company officials said.

So far, both the firms have been servicing only global clients. But, with global demand falling (Nasscom revised the growth to around 16% a year from around 25% earlier) due to the downturn in the US and other western economies, the domestic market, estimated at $1.6 billion and growing at an annual compounded rate of 38%, has gained a momentum.

Now going to remote, rural areas could be the next big shift to offer everything from native language capabilities to data entry type services.

The idea is the same as moving jobs from the U.S. to India - to cash in on cheaper talent and office space. Amitabh Chaudhry, CEO and MD of Infosys BPO, says, "Tying up with rural service providers will keep our gross margins from domestic business similar to those from international business (22-24%)."

The average billing rate for domestic clients is just $3-4 per hour for every employee, compared with $8-12 offered by global clients. This makes offering services to domestic clients from metros and big cities almost unviable.

Hence the move to rural areas that are some 60% cheaper. For instance, in a tier 1 city, a fresher gets about $170, while in a tier III city it is around $75, and even less in villages.

At present there are about a dozen rural BPO players including RuralShores, HOV Services, Sai BPO and DesiCrew in India, accounting for just a fraction of the domestic industry.

Tie-ups with the likes of Infosys and Wipro will help these small startups attract big clients in mobile phone and banking industries that are making major inroads into rural markets.

"We are talking to some big companies for partnerships," says Murali Vullaganti, CEO of RuralShores, a 12-month-old startup that gets technical support from Wipro.

"It makes sense for rural BPOs to look at tieups as they may not be able to bag large contracts on their own," says Chaudhry. "Besides revenue share, we will also train people in villages and tier II, III towns," he adds.

These centers do routine tasks like data entry, processing of utility bills, native language help desk and e-mail response, says Avinash Vashistha, CEO of Bangalore-based advisory firm Tholons. They are, however, not expected to scale up dramatically. That's because, while the manpower is cheap its availability is extremely limited. There are other limitations like lack of skilled manpower, poor broadband connectivity and frequent power blackouts.

Says Ashutosh Vaidya, senior VP and head of Wipro BPO, "Rural areas will be good for some niche tasks and work well as a hub-and-spoke model,

with tier II and III cities also playing a big role in the domestic space."

Ananda Mukerji, MD and CEO of Firstsource Solutions, which services both international and domestic clients, agrees it makes sense to have a distributed capability to access talent and cut costs. "We are also looking at leveraging rural areas or very small towns for delivering services," he adds. Firstsource has about 10,000 of its 22,000 people serving the domestic market.

RuralShores - which has a 160-people center in Bagepalli village, three hours from Bangalore, and another one at Ratnagiri in Vellore district of Tamil Nadu - is planning to open 500 village centers across the country over the next seven years, each with 20-30 seats.

Infosys BPO, which has 100 people for domestic business, will ramp up the number to 500 in the next six months, largely through tie-ups with rural players, Chaudhry said.

He refused to discuss the revenue-sharing model or identify any firm Infosys was in talks with, but said a couple of village-based players around Bhubaneshwar and Udaipur were likely partners.

While Infosys BPO, which has already won a contract from the Karnataka income tax department and another state government project, is chasing mostly state-run companies, Wipro BPO is eyeing business from top 100 customers in India. So as the business spreads to the smaller cities and villages, your call to fix the desktop or buy a new mobile phone plan may well be answered from a village back office.


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