Nasscom Makes a Beeline to India's Villages

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India's National Association of Software and Service Companies (Nasscom) said on Wednesday that its member companies see business opportunities in the country's small towns and villages, where costs are cheaper and staff is more easily available

India's business process outsourcing (BPO) and IT services boom is often criticized as being primarily an urban phenomenon, which has not helped the country's small towns and rural areas develop.

The growth of outsourcing in the cities has instead led to a large-scale migration of rural people into the cities. About 60 percent of the staff working in the BPO industry comes from Indian towns and villages, said Som Mittal, president of Nasscom.

The first rural BPO centers were set up by NGOs, the social service arms of some companies, and entrepreneurs. There are over 200 rural BPO centers in India, mainly run by NGOs. They are typically small, with about 25 to 50 staff each, said Sridhar Mitta, managing director and founder of NextWealth Entrepreneurs, a company in Bangalore that invests and works with local entrepreneurs to set up BPOs.

This year, around 5,000 of the 1 million staff employed by the BPO industry are expected to employed by rural BPO centers, according to Nasscom.

Indian outsourcers see opportunity in an expected surge in demand for BPO services from the Indian market, as well as continued growth in business from traditional markets like the U.S. Revenue from delivery of BPO services to the Indian market is expected to grow seven-fold by 2020 to about US$17 billion, while revenue from exports will rise four-fold to $50 billion, according to Nasscom.

While Indian outsourcers are faced with high staff attrition rates and rising wages in the cities, the problem could be reduced if outsourcers take advantage of educated people, including engineering graduates, living in rural areas, Mitta said. Only about 10 percent of female engineering graduates and about 50 percent of male graduates in rural areas migrate to the cities for jobs, he added.

Although they may not be fluent in spoken English, educated people in rural areas can write English well, enabling them to produce written content or even tutor kids in the U.S., Mitta said.

Companies are likely to break up business processes to send simpler work to rural BPO centers, Mittal said. Customers don't particularly care if the work is delivered from the cities or rural areas, provided the quality of service is maintained, he added.

In addition, the Indian government's plans to increase communications, including broadband Internet in rural areas will help boost the move by outsourcers to set up operations in rural areas, Mittal said.

While companies see opportunity in smaller towns and villages, BPOs set up in rural areas sometimes meet with resistance from both locals and customers.

For example, the Piramal Foundation set up a BPO center staffed with women in rural Rajasthan. Initially, some men were opposed to their wives and daughters working there. But the relatively high wages paid by the center and the opportunity to learn new skills meant the men were soon coming back and asking for jobs for their wives and daughters, said Anand R. Shah, CEO of the foundation.

The women are now computer and Internet savvy, and are making more money than their husbands, Shah said, noting workers in rural India are reliable and hardworking. They also work tend to keep the same jobs for many years and their value system has not been spoiled by India's rapid economic growth story, he said.

The foundation's BPO company, called Source for Change, currently employs 100 people and does data-entry work for both Indian and foreign customers. The project is not yet profitable because there isn't enough work, Shah said, adding customers don't trust the center enough to use it for critical work.

Even though Source for Change's Rajasthan center continues to lose money, Shah believes rural BPO centers have a bright future. But the business model will be slightly different than urban BPO centers. Rather than have large operations as in the cities, that employ thousands of staff, BPO centers in rural India will have to be on a smaller scale with up to 200 staff, as villages are often located miles away from one another.

Mitta agreed, noting his firm prefers a distributed model with a large number of small BPOs run by local entrepreneurs, each employing about 50 to 100 staff.

Looking ahead, the challenge for large outsourcing companies will be to shift from a delivery model that is built around a large number of staff housed in a few, very large facilities to a model that also employs a large number of people, but dispersed in a large number of smaller centers in multiple locations, Mitta said.

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