Category: India

Sometimes too much of a good thing can be a bad thing .Here are some reasons why outsourcing is bad for India.

1) Micro Economic Benefit is Overstated for working class people– An average Indian worker in outsourcing would earn INR 20-30000 per month for working 5 days week and 8 hour shifts ( assumed). Thus his wage is no more than 30000/22*8*45=  That means  2.5 to 3.7 dollars per hour. Most people fresh from college in their first job in KPO and BPO start at 15,000 rupees . That means around 1.8 dollars per hour.

2) Social Impact- The impact on social life can be seen by going to any Gurgaon pub or discotheque at around 12- 2pm where you would see raunchy scenes, as young people of the age of 20-25 relax, after working for 8 hours interacting with mostly Western people. The reality of how life is in the West is distorted by their perceptions of Hollywood. Its like thinking Indian society is like Bollywood movies. Families are torn between accepting the immediate cash that the young son or daughter brings, and the rising number of teenage pregnancies in ITES centers is a statistic that is ignored– as abortion is legal in India.Many Indian companies have fired CEOs for having office affairs yet these have been hidden from the press.Many a times young couples in same night shifts have experimented with live in relationships, as they feel that is “okay” without knowing the tremendous impact the breakdown of family life has on people.The working hours and stresses have also impacted the divorce rates in India which are now shooting up. Alas these inconvenient truths are neither tabulated by the same companies who are creating a database of all ITES workers to ensure they can track people from company to company.

3) Macro Economic Dependency – By diverting most of the young people of an economy to low end repetitive jobs, it is a brain drain or immigration without actual transport due to technology as these people would be otherwise be working to develop in India’s economy.The linking of globalized economies is not always a good thing as it it is sometimes leads to infecting economies globally with a small crisis multiplied due to dependencies.

4) Ownership- Most Indian outsourcers are owned by Private Equity funds, which coincidentally sit on the boards of some of their biggest clients.Western Private equity funds do a regulatory arbitrage of labor conditions and corporate governance , as Indians are relatively new to the concepts of work life balance, over time pay , or societal ethics. Lack of protection to whistle blowers has been evident in the murders of engineers ( involving politicians) in construction, so there are very little whistle blowing laws in India.Thus economically it is a transfer of money from American middle class workers in terms of job loss to middle class Indian workers at a 40 % wage to that paid earlier but the majority share goes back to American top end society who invests in these private equity funds.

5) Labor conditions-If the NYSE listed companies of Indian ITES are asked by regulators in the United States on how many extra hours have workers put in beyond 40 hours a week, and how much overtime money has been paid to them for that, the answer would suffice to tell you that Indians are intellectual chimney sweeps in terms of pay as well as health care benefits.Joining a union is illegal in most Indian companies.Work life balance is an alien concept as heady promotions lure people to work even harder.Culturally Indians find it difficult to say no to superiors and working extra hard is considered good than trying for balanced life.

6) Illegal Contracts – Renowned Indian KPO’s and BPOs hire and make people sign a employment bond especially for an overseas trip. The rationale is that so people do not quit immediately after coming from an on site client. Yet for a two or even a three week trip, people are forced to sign employment bonds of one to two years, with heavy financial penalties for leaving the job earlier. These would be illegal in the same country as which the Western client is situated yet these are enforced compulsorily. Some companies even force people to sign a bond saying they will not quit for the first two years, thus creating an unique bonded labor system for white collar workers. Some companies sign anti poaching contracts ,promising not to hire people from the other company.

7) Health Impact-  I have personally noted many promising people side lined due to bad backs in their late twenties and early thirties because of constant sitting in badly designed ergonomic chairs and working more than 8-9 hours in a day. Yet chronic organizational overwork of employees is noted as productivity increases without noting additional costs , as India lacks adequate medical infrastructure for all its people. I have seen BPO workers sip gin and water between doing double shifts ,and gorge on fatty road side dhabas to keep their energy levels up. Who pays for their health cost ? Mostly it is the family.

 

Not all outsourcing is bad.Exposure to cutting edge technology and research is one area where offshoring is really good. Not all of it is good either.

A balanced way in which all  companies are forced to adopt same labor conditions at all their vendors as they have for their employees ( maybe with different wages adjusted for purchasing power parity) is the way out.

 

An additional point is financially creative outsourcing- Many times companies shift headquarters to say a tax free location like Dubai, then offshore their work to India at 40 % cost and 120 % hours worked per worker, while keeping a small staff in the US.

These tax incentives to do these kinds of offshoring is plain and simple cheating.

Consulting companies may publish reports on how good offshoring is , but there is no such thing as a free lunch. There are hidden costs involved in this industry ,just like anything else, and it is for regulators and governments to ensure fairness and openness.

 

The Author has worked with some of India’s top offshoring companies. These are his personal perspectives.

Chak De (Lift Them) or Chuck Them BPO India

An essay by Ajay Ohri

The Back Office Processing (hereby called BPO) Industry is one of the largest providers of employment in India. They employ an estimated half-a-million Indians, mostly in the 20-35 age groups, and these numbers are only increasing. Thus, the number of people who are directly affected by the Indian call centre industry is nearly 1.5 million Indians including dependents. For a vast majority of them, the BPO industry is considered a boon as it enables them to earn wages much more than was possible previously.

The industry is by large un-regulated compared to other industries and has grown rapidly unchecked over the few past years. It has had systematic issues, especially related to coping with human resource management, in times of rapid growth .Indeed most BPO Human resource personnel are either furiously recruiting or trying to manage attrition with minimum costs.

A Few Issues

The BPO industry is marked with some operational issues and they are enumerated as follows: –

Lack of Labor Guidelines: There is very little over-time pay and it, thus, leads to systematic overworking or understaffing of resources in both small and big BPOs. The understaffing is also responsible for the erratic quality or projects due to rush jobs. Labor regulation has been avoided because historically Indian regulations have been misused to offer hassles to industry rather than relief or solutions. A committee headed by Arjun Sengupta had submitted a draft of the Unorganized Sector Workers’ Bill to cover the workers in this sector.

Lack of Health Guidelines: There can be medical counseling (without too much expenses) to cope with effects of prolonged night-shifts, or sitting in chairs, especially chronic back-aches, and personality counseling. This shall help especially when there is project requirements for extended over times.

Employee Retrainabilty: There can be career counseling to help young employees plan a career in a still turbulent sector (Not everyone will be a team leader). There is no provision for re-training for workers being laid off and there is little chance of unemployment benefits in India. Retrenchment in this sector happens at a larger scale usually when companies lose a few big clients as in the recent mortgage sub prime crisis or even earlier when a big computer maker of American-origin shifted. The insecurity of being laid off leads to further attrition. In this scenario, companies that offer skill enhancement and re-training are likely to have a sustainable edge in human resource management.

Lack of Flexible Work Force Response to Sudden Positive or Negative Moves: By offering too low prices, BPOs lack the capability of the Information Technology industry in having bench strength. A minimum bench strength can enable them to move up  the value chain by building proprietary products and domain expertise. This can be in terms of both larger number of internships, apprentice-ships to cut down costs, as well as boost the quality of the labor pool and better rotational stints within the corporate.

Employee welfare and worker rights have been driven primarily to control short term attrition. Despite the large number of workers employed, few political groups have come forward, perhaps because of the urban (and hence, least voting bloc) nature of workers in the BPO sector. If politicians don’t get votes and this segment is unlikely to protest, they have no incentive to look into this repeated abuse of young people. Some of the tasks performed by these workers are similar to intellectual chimney sweeps or coolies of the nineteenth century, as they do copying and pasting in a repetitive manner in spread-sheets.

Attrition – An urban legend: Despite the noise about attrition by industry players, most of the attrition is actually and subtly encouraged to keep operating margins down. This is because attrition enables middle managers to cut down costs temporarily by making other team members stretch, and replacing them by un-experienced younger members. It is also very easily explained as due to market conditions or poaching by other companies. The solution for having an industry wide database lacks sensitivity to individual personal rights and seems to point the finger almost entirely on employees for attrition.

Corporate Governance

The BPO industry which was asking for Government help when the dollar hit Rs 39 is silent about when the dollar swung back to 48 rs. There is a huge impact on proftability to this segment, yet Coprorate Governance norms in both listed and unlisted companies are not world class. In the West making workers work 12 hours a day without overtime would be a crime, backdating stock options would be a scandal and using employement bonds to prevent people from leaving would be unfair and illegal. Many Indian companies have substantial share holdings with Western PE investors who swing business their way from their companies in the West. The pricing pressure is much more due to competition dynamics  than due to labor costs yet costs are always cut from managers and below.

The BPO Industry in India favors the few (Senior Management, VC Investors, Global Multi-Nationals) at a disproportionate cost to the many (the worker handling the phone call, or manipulating the spread-sheet). These sultans of the industry are already planning to set-up centers in China and East Europe to help squeeze wages down further. Rather than move reactively, attrition can be controlled if more companies offer employees fair and credible stock options rather than unsustainable salary hikes.

Long Term

If unchecked and un-regulated, by the next 10 years, we would have millions of workers elbowed out by relentless demographics of a young India or China or East Europe, with limited skills and unprotected by either legislation or by social care.

Like toy soldiers, millions of young urban Indians sacrifice their health, un-noticed by anyone, and unable to go to the streets to protest. The complete lack of union, legal and political protection, can only lead to further abuse of this demographic segment by the gladiators of modern India’s capitalism, the ones who make their stock options and bury their conscience with drinks at suburban five-star pubs.

A more socially responsible BPO industry can protect both its employees and its own interests by working in a proactive manner by retraining its employees rather than a reactive manner by laying off staff. Once it does so, it has the potential to move-up the chain to offer wing-to-wing consulting solutions.

 

The UNITES workers union proactively works in protecting BPO workers rights , but it has limited leverage. For example it’s warnings to NASSCOM about Satyam , a month ago after the World Bank blacklisting were ignored by NASSCOM saying they could not interfere with a constituent company.

Domestic call centers in India have generated more than $ 1.2 billion in revenue in 2006-2007 and they can sustain and prolong their growth by better human resource management leading to innovation driven revenues rather than factor driven revenues.

It will be, then, a true case of Chak de BPO India rather than chuck them BPO India.

( A copy of this article first appeared here

This article is updated for recent events)

I first wrote about the need to adopt Keynesian stimulus spending on June 25, 2008 here at http://www.decisionstats.com/?p=143 instead of just tinkering with monetary rates to curb inflation. I stand both vindicated as well defeated. Vindication because finally the US as well Indian government have accepted the need for stimulus spending to create jobs, inflation being a proxy of them high fuel prices and note the following lines -I wrote them on June 25,2008 .

 

By blindly following Milton Friedman ’s economic monetary policies of money control, the central banks are ignoring the fundamentals of the current crisis in which essential commodities are having increased prices, and growth is threated by global and financial market failures. Ironically these are conditions that have taken place almost 79 years ago in the macro economic event called Great Depression.

 

So why the defeat .Well it is one thing to accurately  predict macro economic stress , and another to be affected by it. With nearly 6.7 % un-employment and another 12-14 % under employment ( people who have stopped looking for work or are forced to be part time workers ), thats almost one in every five American adult who is not able to contribute productively. No wonder almost one in every ten households is in mortgage default, almost assuming two earning members per household on the average. As a data consultant primarily focused on the North American market I have lot more data but lesser pipeline of clients to look for.

 

Layoffs give individual firms temporary cash flow relief but that relief is temporary as it overall reduces the capacity of the economy to absorb goods and services. Thus reduced supplies are almost inevitably followed by reduced demand ( note the latest retail and automobile sales numbers).Indeed tax policies should be tweaked to give latoff aggressive companies lesser benefit than conservative companies- as the government loses revenue from the missing income taxes.

 

In India, the central bank has again stuck to more of monetary policy and less stimulus relief despite the presence of large foreign exchange reserves ( which have grown almsot 20 % in value thanks to the rupee depreciating against the dollar).Thus it is not surprising that banks have frozen lending to automobiles and continue with higher rates as they stick to higher deposit rates and cautious ALM policies.

The projected growth of Indian GDP at 6.5 % is much lower than 8-9 % earlier and is likely to be even lesser.

The brighter side- the new US administration seems aware of the challenge. Unlike other superpowers in history the United States might be the only one whose economic boom is almost always shared among nations ( Europe after World War 2) and later on Asia thanks to offshoring.With job creation and spending as priority sectors this returns the US economy to Keynesian spending ( though it is marketed as being similar to the Replublican President EisenHower’s highway initiative to get more Bi-Partisan support)

And India is having elections next year which in the wake of terror attacks and an angry public might lead to higher turnout especially among the literate and urban masses and greater responsiveness .

Another surprise could be the technology sector as this sector has sprung more innovation than anyone. As more and more people start startups particularly in Bangalore , and lesser VC money to choose from – online B2C sales could also be booming thanks to lower costs in aggregated supply management.

 

Disclaimer- These are my personal views.

Apologies for the typos- my 1 yr old son broke the keyboard and some keys were missing the placeholders.

On a much deserved break from analyzing numbers and economies , the family and I headed out to a neighbour’s wedding. This is November , and peak time in the Indian Marriage season. However I could not help but noticing the folowing things while at the wedding-

1. People in Indian weddings mostly wear clothes of all colors , unlike the West where Black is worn by the Groom and his men , while the Bride wears white. Here almost all ladies are festooned in rainbow colored silks and flash golden (real and fake) jewellry. This has a noticeable effect on Gold prices ( almost all imported in India) and clothes ( almost totally made in India and exported too)
2. Thanks to municipal regulations – weddings in the capital ,Delhi have to me only in community halls and licensed wedding halls. Weddings in farmhouses are banned. This has led to huge shortage of wedding spaces in the capital area, leading to almost all open air weddings being conducted in the sub urbs. The shortage of wedding places is due to lack of planning by urban planners from the pre liberalized India, whoi could not figure out the annual growth rate of population in Delhi  would also lead to an annual growth rate of weddings in Delhi.
3. There are 365 days in an year but Indian weddings can only be made in certain auspicious days as per the collective Hindu priestdom , which though much impoverished today , earns principally during the wedding times . This also leads to shortage of space in Wedding season and hence an artificial price hike in the booking of marriage spaces. During lean season ( apparently Planet Shani or Saturn has something to do with it in Hindu astrology), the wedding spaces and caterers do lookout for Muslim ,Sikh and Christian weddings ( together 15 % of India’s population- numbers for Delhi not updated). No link has been found in either Hindu priests or the wedding planners but some cartelization seems a possibilty as they gain from the artifical shortage of days on which you can get married. Co relation however is not causation.
4. If you disbelive this – my own wedding got postponed by 2 months while I waited for the planets to get back on track.
5. The various vendors and sub contractors in an Indian wedding are
   1. Horse Minder and Horse ( Hindu Grooms come riding on a Horse. Very romantic but quite painful I assure you for the groom. The pain seems delibrate as India has the lowest rate of divorces and re marriages.
   2. Caterer of Food ( Seperate Charges for Vegetarian and Non Vegetarian with Non Vegetarian food quite expensive.)Food is generally charged per plate with a minimum committment. Charges can range on a median of 400 Rs per plate. Thats 8 dollars a plate ( Rupee got depreciated again)
   3. Tent Chap – One who puts up the big tent
   4. Flower People – Literally Flower people
   5. Wedding Space rent
   6. Clothes ( Specialized Saree sellers loved by women and universally hated by the men who have to pay for the sarees and cant make out the difference between dark blue and ..mauve.
   7. Jewellers- India remians the largest importer of Gold. It has the highest per capita gold consumption. Part of the culture. Funnily it makes sense to keep money in Gold and hand it down from generation to generation.
   8. Music Dj – who plays the Indian Bollywood songs and in Northern Urban India a lot of Punjabi music
   9. Photographers and Video graphers
   10. Very few professional wedding planners for most middle class weddings. This is thanks to the Indian penchant for saving money and also because of economic reason ( see below)
6. Enormous money is pumped in Indian weddings compared to the Indian per capita income ( 800 USD PER YEAR ). It makes the weddings more memorable. Adds to the pain so people stay married and avoid divorces.

Thats all for this week. The Dow has crashed again, the rupee has crossed 50 per dollar, Oil has fallen below 50 USD, and US congress is now re thinking on the auto bailout.Gold prices internationally remain confused and Indian inflation fell to 8.9 %. Indian bankers continue to ask for a rate cut while the central bankers continue to smile like the Buddha.

Recessions come and go but as long as people get married again and again life continues.

Happy Thanksgiving !!