Letter from our CEO

by Elliot Clark

Every four years the world is exposed to the spectrum of thousands of athletes from over 100 countries competing for supremacy in their chosen fields. This is not unlike the world of business. So, we ask, who will dominate the FAO market of the future? Who will win the gold medal? As I watched the Olympics, I frankly thought that many eyes should turn toward China.

The driver of much of the FAO and shared services promise is cost reduction. As we watch the first wave crest, the pundits have all prophesied that—as global wage gaps narrowed—“labor arbitrage” had run its course. BPO would have to go elsewhere to seek savings, they said. Innovation, technology and the “one-to-many platforms” would be the next hill to conquer.

To confirm the labor arbitrage arguments, one only had to look to the wage inflation in such tier-one Indian cities as Bangalore, Mumbai, Gurgaon, etc., where wage gaps were getting skinnier than a super model on a guava diet. Of course, offshoring locations in FAO and shared service centers have shown that Mexico, Costa Rica, and Eastern Europe hold promise, but wages have risen in those areas, as well.

But one significant labor pool has been lying dormant in the sleeping dragon that is China. The BPO industry is growing in China, and infrastructure is being constructed on an impressive scale. Million-square-foot office parks in second-tier cities such as Suzhou are selling out in weeks to new BPO firms. One of the principal arguments against China has always been the language barrier—but, frankly, if you can train 10,000 volunteers to speak English and French for a sporting event, you can train a processing center to do the same, if dollars, euros, or yuan are at stake.

Does this mean that China will someday threaten India’s supremacy as the BPO capital of the world?

Yes. They will threaten it, and they might win.

Why is this possible? India has some advantages in human capital, but I am now going to generalize about weaknesses that could come back to haunt them. Indian companies have long sold their value proposition on labor arbitrage and seat models. They have demonstrated an affinity for cost preference over brand preference. In fact, they have done a relatively poor job at building brand, and most Indian BPO companies that have any brand built it in the IT space. In fact, they have shown some opposition to investing in brand, deeming it a waste of money, and most have not entered the common consciousness of business executives.

What China showed during the Olympics is they know how to invest in image and for Western multinational companies in the U.S. and EU, brand preference will win. As long as two vendors are relatively competitive, the stronger brand trumps in a business where “failure risk” is a consideration. In the long term, the Indian firms need to learn this lesson of brand development and global marketing, or they can expect strong competition from the growing Chinese BPO industry. China has already showing a keen understanding of global business in other industries.

This is not an immediate paradigm shift, but it is one worth noting. Many of the Indian firms are setting up Chinese office centers, but this will only spur competition as FAO business acumen is transferred to Chinese leaders who will someday break away to form new providers.

As the FAO Olympics play out over the next decade, it will be interesting to see where the offshore destination of choice will be, who will get the gold—and who will settle for silver.