BPO Industry - Will it Die Out ?

India is riding high on outsourcing. India's BPO Industry might be heading for a sunset. Ironic, two diabolical statements, but true.

A NASSCOM survey reveals that IT and ITES will employ around 4 million people in 2008 and contribute to 7% of GDP and 33% of India's foreign exchange inflows. The death of this industry is far away from everyone's mind. The policies of Obama, will matter to a certain extent, but on the whole the picture looks pretty good. But India, for all its glory is still the back office for the entire world. The Indians don't do the thinking. The customers do. India executes.

Now lets have a look at the REAL scene.

Wages in India are rising continuously. The reason why the BPO Industry flourished in India was that the cost advantage for offshoring used to be atleast 1:6. Nowadays, it is around 1:3. The most scary things that this industry faces is attrition and low value jobs. The $30 billion industry will surely lose its competitive advantage as the cost structure becomes 1:1.5 and the use of Indian labour becomes inefficient. Forbes recently published some scary statistics on wage inflation in India ("Indian Employees Enjoying Swift Pay Hikes."). Salaries rose 15.1% in 2007, up from 14.4% the previous year. The 2008 forecast: 15.2%. This would be the fifth consecutive year of salary growth above 10%.

The question here is, Will we see the death of the BPO Industry sometime soon ?

Assuming a 15% year-to-year salary hike rate, and a 2007 cost advantage of 1:3 in favor of India, if U.S. wages remain constant,India's cost advantage disappears by 2015.

Then what?

Some figures have been used from Srimana Patra's article.