The BPO industry is now one of the most powerful growth engines bringing prosperity to Indian cities like Hyderabad, Pune and Bangalore. Mushrooming off shoring companies are quickly absorbing the once unemployed army of educated young people, driving up salary levels and demand for space.
The industry has also spawned supporting ecologies of malls, retailing business, services and entertainment in some of these cities. Now, the runaway growth is threatening to become the biggest risk to the industry as companies pressured by spiraling costs in these regions, begin to explore alternative low-cost destinations.
For example, a large Delhi-based (Indian capital) offshore services firm that employs a staff of more than 4,000 is evaluating whether it would be cost-effective to move some of its operations to China.
A spokesperson for the company vehemently denied that it was considering moving jobs but a source said it was putting together a China strategy that could involve moving work away from India. Already software companies like TCS and Satyam have made a start by setting up shop in China.
The off shoring industry may see a bottleneck as early as 2007 as companies are rethinking their location strategies because of increasing property and labor costs. Latest government data showed that consumer prices in BPO hubs like Hyderabad and Pune were rising faster than even big cities such as Mumbai and Delhi.
In emerging centers that is smaller cities consumer price inflation was even more.
Many foreign firms that had planned to set up BPO in India have now put the plans on hold. They are now waiting and watching.
Head of industry association Nasscom, recently said that in the next five years India may lose potential off shoring work worth an estimated $5 billion due to talent shortage. Nasscom is in talks with the government to set up special education zones to expand to ease the talent bottleneck.