A mild US recession is good for BPO

www.dnaindia.com - April 7, 2008
Those who consider him the father of the Indian BPO industry are many, and not without reason. Raman Roy was the man who started outsourcing operations of American Express, GE and Spectramind. Now the chairman and director of Quatrro BPO Solutions, Roy spoke with Vivek Seal from his Gurgaon office last week.

Excerpts from the interaction:

How did it all begin… the BPO industry in India, your experience at the American Express…?
It was not like one fine day light went on and you got this bright idea of offshoring. I keep on saying that BPO industry happened by an accident.

We just launched the American Express card for Indian customers, and there were some reports that we used to send to New York on some comparatives. They never used to focus on our reports because they looked too good and they thought those Indians do not know their work.

But as a part of my training in launching the card in India, I had come back with a conviction that we could do better than them. I started this campaign of talking to people, telling them that they must do something international out of India, even though nobody at that time was doing it. There was a stage when I used to go to those meetings where people used to say, "Oh no this guy is here again, and he will start rattling on why we are not doing something out of India."

The first project they gave me was in 1985, more to get rid of me, their idea was to give me something that will not work and eventually I will shut up.

(Roy was then the head of operations and chief financial officer for the Indian business of American Express).

I guess I did a good job in persuading them because they asked me to set up their BPO operations in India. I got the honour of leading it because I was the biggest racket-maker.

After American Express, you moved to GE. Why and how was the progression?
I was not that smart to see offshoring as a huge business, but someone else was. Gary Wendt, who was the chairman and CEO of GE Capital, saw this as a huge opportunity. He motivated me to become a part of his team in GE (in the mid-1990s). Gary asked me what is the investment needed for this —- at that time I had spent around $5 million to $6 million for American Express BPO —- and it was a big trouble getting approval from Amex to put in more money.

So I started thinking what will I lose if this doesn’t work… At that point, I had spent around $5-6 million for Amex, and it was big trouble getting approval from them to put in more money. About 500-600 employees were working on this. I told Gary $10 million bucks.

We were sitting in Belevedere at the Oberoi. “Oh, loose change,” Gary said, and I got damn pissed off. I said that’s $10 million not Rs 10 million. He said, “Yeah, that’s loose change for us.” And here I was making such a song and dance before Amex in New York for more money.

Wendt was very quick to figure out what it will take to be able to do this. He said there will be no one to bother me for approvals. He told me the money I need will be put up in the bank.

“Whatever Amex is paying you we will better that,” Gary said. I told him that I am not looking for a job, but Gary said he will make an offer I can’t refuse.

The biggest part of the offer was to take care of all the issues that I was having trying to create growth for Amex. Gary also gave me a challenge to take the employee size to 1000 people in three years or so by the mid-90s.

Now, looking back, I remember I only went to meet Wendt for a free meal —- and it was a nice meal. only went to him for a free meal, and it was a nice meal. We were in talks for 9 months, I told them you already know what is to be done, you get someone else to do it, they said we have checked the market, there is only one guy in the market who can do this and that is you. It was not about the money.

Till that time there was a thinking that you can do it with 500-700 people but not with 3000 people. In the five years that I spend at GE, which today is called Genpact, we grew it to about 9,000 people.

What led you to start Spectramind?
There was an aspiration to run a true profit centre. Amex and GE, at the end of the day, were captives.

We made a proposal to GE to do what they are doing now, we said we should start servicing third parties but they were not keen. My management and me decided that it was too good an opportunity to pass, so my management team from Amex and GE quit to make Spectramind on March 30, 2000. We made an investment of around $7 million to start with.

I guess we were right about the potential because in less than 5 years, we grew it into 16,500 people, became the largest BPO provider from the country.

Tell us how Quattro, your fourth venture, happened?
We were venture-funded and Wipro wanted to enter the BPO world through the inorganic route. They made an offer to Chrysalis Capital, our venture capitalist, which they could not refuse. I told Chrysalis that you are selling out too soon, there is more money to be made, but he went ahead.

I sincerely believed that there were only two BPOs set up for an IPO at that time —- one was Spectramind and the other was Daksh, which was later on acquired by IBM.

Then we wanted to do something different and Quatrro happened to us.

Smaller clients were one of our focus areas to spread the risks and other focus was to diversify to different geographies like the Philippines, Colombo, Dubai and Shanghai.

The ability of big companies to come by and renegotiate rates was huge. My largest customer during my Spectramind days had 4,500 employees —- just one customer.

When they said jump I said how high, when they said we want to renegotiate prices I said tell us what do you want.

We are around 2,000 people today, the average revenue is very high, profitability is pretty decent, we are hurt by the dollar-rupee equation, but our margins are higher compared with others and that has shielded us to an extent.untry.

From those earlier days to now, what has changed in BPO?
Lot of things are different now, some are good different and some are bad different. When I went to take bandwidth for American Express and I asked for 1 MB line, the maximum anybody has taken at that time was 512 kbps by Tata Consultancy Services.

We wanted redundancy for the last mile and people couldn’t understand the concept of redundancy at that time on why we want to spend money on another cable.

When I applied for a call centre licence for Spectramind in the year 2000, there was no form to fill, we wrote the licence application on our letterhead to run the call centre operations for Spectramind.

So we waited, and waited, customers were asking when can you start. It was two months, before I went to the officials to enquire what happened.

When the official took out our file, he said we can give you an approval for a call centre but cannot allow incoming and outgoing calls.

I told him that call centre does only incoming and outgoing calls.

We spent hours on printing out the definitions of a call centre, we made “one-inch thick book” on it and showed him the file next day, which led to the approval.

Do you think the perception of a call centre has changed?
I remember one mother complaining to me that “Kya jadoo kar diya hai meri kudi pe (what spell have you cast on my girl), she only wants to work with you and you are saying she has to come in the night.”

Her mother was very afraid of the society due to the abrupt timings of her work. So I told her “here is bunch of applications, give this to her friends in the locality and we will hire everyone”. She was very happy with the idea, and she got us five more people to agree to join.

The social stigma with the call centre has gone away with time.
We created an industry out of nothing, 10 years ago when I used to go to presentations, one of my pages was titled “This is India”, I used to tell them we are not all snake charmers and elephant riders, India is a robust industry. Today that page is not required, if anything, they are scared of India.

The staff expectations today are huge, the BPO industry pays 50% to 60% more than any other industry, I was not scared of attrition levels earlier, but now it is a huge pain.

Will the US recession hurt the outsourcers?
A mild recession would be good for our industry. Recession is two quarters of negative of GDP growth. It will require the corporate world of the developed economies to take out costs.

They cannot have high fixed costs when their revenues are depleting, for that impacts their bottomline. So they will have to make their costs variable, which is keeping with the decrease in the revenue.

Thus offshoring and outsourcing are among the top three choices they have. Of course, they have the third —- of closing down the business.

We are seeing an impact of the US slowdown, a huge positive impact. Our mortgage business is doing very well. Unfortunately, the mortgage industry is in turmoil, we are doing foreclosures, we are doing programs that are funded by the US government to get out of the recession.

Companies are thinking now, what else can I offshore? We can leverage that advantage.
Quattro’s focus is not large companies, and if the giants face a slowdown of orders by 20%, they need their workforce to be reduced and the first option is to get rid of the third party. People who may get hurt are those with that target audience.nt to get out of the recession.

If the IT vendors are growing at 20 percent instead of 30 percent it still is a growth and not a de-growth, no one is showing a de-growth.

Last year Wipro, Infosys and TCS hired 200,000 people, they are not showing de-growth, they are still going to hire many more people.

Our mindset is such that if there is a silver lining, there has to be a cloud attached.
At a industry level and the company level it’s a different ball game . The pricing is becoming challenging. Earlier clients wanted a rupee-based pricing, but now they want a dollar-based one because the greenback is weakening.

They want some minimum fixed guarantee, but that is a sign of the maturity of the industry.

There is a huge demand and supply mismatch in India today. We can grow to a $50 billion industry by 2012, but our aspiration as a country is to be just santusht (satisfied) with what we have.

What about the government’s role?
The finance minister does not go out to the market, the industry does, I compete with the Philippines, where they get a 10-year tax holiday, so they are able to quote a very different price.

I want to ask the FM, "Why did you take my tax holiday away?"
The FM says IT is a mature industry, Sir, I do not know about IT, but what about BPO? The FM thinks we are IT, which in fact, we are not.

How we are going to compete, the dollar-rupee is out of whack, the Philippines supports the industry with their peso appreciation and dollar depreciation.

We are so good at generating educated, unemployable people! So to make them employable, we train them for three months. The top 5 companies in India have a new-hire budget for over $1 billion. The government is leaving everything to the entrepreneurial skills of the people, rather than giving them help and support to compete. In short, the government does nothing.

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