The rural BPO phenomenon in India started about five years ago. Since then outsourcing to rural BPOs or villages has been a catchy concept with zesty entrepreneurs setting-up rural BPOs, large Indian corporations starting their BPOs in villages as a corporate social responsibility (CSR) activity or tying-up with local NGOs to promote BPOs in rural villages.

Recently, Infosys announced its plans to partner with rural BPOs across India to reduce cost and take the advantage of vernacular language support required to operate in the domestic market. The company has already partnered with two rural BPOs; RuralShores and DesiCrew Solutions and set up centers in the villages of Andhra Pradesh. According to NASSCOM estimates, there are around 50 odd rural BPOs in India spread across the nation employing about 5,000 rural youth and these numbers are growing.

Rural India offers a very cost-effective solution to urban India’s BPO challenges of increasing labor costs, high attrition rates, employee ambition and growth prospect issues, etc. Typical advantages that are often touted about rural BPOs are:

Low cost labor - Average employee salary in rural BPO is around USD 70 – 100. For a similar resource the salary in urban BPO could be around USD 150 – 220.

Low operating costs - Rural BPOs offer a 30 – 40 percent operating cost arbitrage over urban BPOs

Virtually absent attrition levels - Urban BPOs have attrition as high as 50 percent, while rural BPOs have virtually no attrition

Rural Transformation - Rural BPOs are increasing employment opportunities that were hitherto unavailable for the educated rural population, creating wealth for rural societies and supporting their growth and development. In this process of transformation, these BPOs help in retaining at least a percentage of the educated workforce within that area. Normally there is migration of educated youth to tier I or tier II cities. Rural BPO provides opportunities at arms length for the educated, especially for women who are normally restricted from moving out of their place of residence.

Additionally, several state governments have offered incentives to set-up rural BPOs within the country. Most of the rural BPOs set ambitious targets looking at the initial success they received. Few of the BPOs that were set in past five years and their proposed plans are shown in the figure below. If we take a stock of their current status it is hard to believe that rural BPOs will see a growth rate like their urban counterparts in this decade.

Rural BPOs have come up as an alternative for low-end, low-skilled data entry work that proves to be costly when worked out of a tier I or a tier II BPO. Typical services offered by Rural BPOs include:

Digitization services- data entry, converting documents to ‘PDF’ format, book digitization, typing, scanning, conversion of hard copy into soft copy

Voice based services- inbound and outbound calling (typically tele-sales, tele-marketing, and customer care for telecom companies requiring local language capabilities)

While quality issues can be taken care of through Service Level Agreements (SLAs), there are other issues that need to be addressed before rural BPOs can really be relevant in the interest of the larger IT-BPO industry in the long run.

Rural BPOs are fraught with several challenges that need to be addressed before they can really go to the next level.

Infrastructure- An average rural BPO is a small set-up of 10 to 50 full-time equivalents (FTEs) employee capacity, providing low-end data entry work to domestic clients or operating as a sub-contractor to a foreign MNC client. As such this BPO works on a bare minimum infrastructure including a small office with a broadband or leased line to support connectivity. It is usually tough to get a broadband connection in Indian villages so these BPOs have to manage with low-speed dial-in connections. Long and extended power cuts from a few hours on the lower side to a few days on the extreme side are taken for granted in Indian villages. Hence, power back-up is an absolute essential to keep the business running. Such a set-up is also riskier for services that require extended hours of uninterrupted power. This often limits the gamut of services that the BPO could offer.

Access to funding - Most of the rural BPOs who have seen some success or have reached break-even by now are being nurtured by large Indian corporations or have managed to receive funding through venture capitalists based on the social impact that the business could cause. In many cases the investing party is being served by the BPO, as far as corporations are involved. A strong business case with scalability and growth prospects remains unclear.

Talent Management- Most of the workforce in rural BPOs is either college drop-out or having elementary education. The organization structure is quite flat with probably just two to three layers till the management. At the team leaders role these BPOs try to recruit talent who are city educated but having roots in villages so that they are open to such openings and are sensitized to the village culture. They typically take up a rural BPO job because the cost of living in the city does not leave them with enough savings at the same time staying away from their families. Additionally, getting trained manpower for IT infrastructure maintenance and management requires skills that are not available in the villages. In such cases rural BPOs have to get the support from the most optimum resources in near-by cities.

Business and service scalability- An average rural BPO offers low end digitization services. With the limited resources that the BPO has, it is very difficult to scale-up this business assuming there is growth in number of similar clients or growth is work volume or both. Attracting qualified talent in numbers is a task in itself. It’s only the larger rural BPOs that can afford to train and sustain fresh recruits and keep hiring.

According to NASSCOM, the 2015 projections being put out by the leading rural BPOs are about 1,000 centers and 150,000 employees. Although this figure is achievable statistically, given the number of rural youth having basic understanding in computers and English language required for low-end BPO work, such an enormous growth (CAGR of 100 percent from 2010 to 2015) will call for more investments and more business flowing in. Unless there is significant back-up of funding from investing parties, be it public or private and parallel marketing initiatives to begin with, sustaining rural BPOs and transforming rural economy at a national scale remains a distant reality.

With the limited talent willing to actually work in a rural set-up, these BPOs cannot work beyond the low-end services in the coming years. Training employees to deliver more high-end services will not prove to be cost-effective and good business sense. The whole idea of cost-effectiveness for low-end work delivered through a rural BPO will be under question. Given these limitations, rural BPOs might not scale-up to offer a range of services across different verticals like their urban counterpart.

Moving forward

Rural BPOs are expected to grow organically up to a limit for remaining manageable with the resources available and making business sense. In order to achieve its ultimate goal of being a social venture transforming rural communities and operating as a business enterprise it is advisable for such BPOs to operate in a hub and spoke model. This is similar to the analogy of milk co-operatives that materially transformed rural communities in Gujarat, India.
Rural BPOs could develop a pan-India set-up through a decentralized hub and spoke model. In such a model, each unit or center in the network of the BPO will provide the actual services that will be delivered to a regional center or hub which will further assimilate the content and deliver it to a central location that delivers the final output to the client. Every center is in this way could be an entrepreneurial initiative and responsible for its own profitability and management.

From a business development perspective, it makes more sense for rural BPOs to support local government initiatives including online data entry of affidavits during elections, assisting banks in financial inclusion initiatives by providing voice and non-voice support for micro-finance activities including periodic calling, application filling, repayment collection, feedback collection, etc. Additionally, local NGOs can partner with these BPOs to present their case to large domestic BPOs and other large corporations who are willing to sub-contract their BPO work as a part of their corporate social responsibility initiative.

With the challenges that urban BPOs are facing in terms of growing global competition, escalating costs and high attrition levels, companies can have a serious look at what rural BPOs have to offer. High end work still can continue with the tier I cities, and high volume, low-end work can be certainly offshored to rural BPOs centers to continue to take advantage of India as an offshoring destination.

Conclusion

The rural BPO wave in India has just begun and is quite difficult to predict which direction the market forces will take these BPOs. Rural India is becoming more and more a growth area for businesses like telecom, FMCG and other goods who want to penetrate deeper in these geographies. Additionally, with NASSCOM estimates for domestic BPO market in FY11 to be around USD 2.8 billion, there is a large opportunity for rural BPO to tap and remain relevant.

Kumar Parakala is Head of IT Advisory KPMG in India and EMA,COO Advisory, KPMG in India
Global Head for Sourcing Advisory

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