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India will reap profits of Internet revolution

For once, tech gurus may be guilty of underplaying how much the Internet will change your life.

Especially if you live in a moderate-to high-income country, are of modest to moderate intelligence, and work at a service industry job which can be done more cheaply -- and possibly better -- by some bright eager beaver in Bangalore.

Or Madras, Delhi, Bombay -- anywhere in India to which globally-active banks, insurance companies, airlines or credit card companies shift their most labor-intensive operations.

The telecommunications revolution has made it possible for functions such as insurance claims processing, accounting, order taking or customer support to be done from anywhere.

The economics of global competition will ensure they are.

Tech researcher Gartner recently forecast that by December more than 80 percent of multinationals will use IT outsourcing to save money, overcome skills shortages or increase flexibility.

Without a doubt, much of that work is headed to India.

"Today India is the dominant player, with a greater than US$6.2 billion [IT service] export industry, more than 900 software export firms and approximately 415,000 English-literate IT professionals," the report said.

Gartner Dataquest forecasts the market for this type of service, which the industry calls global business process outsourcing, (BPO), will grow to US$543 billion in 2004, at a compound annual growth rate of 21 percent.

BPO operations in India are being set up by listed Indian companies, such as Infosys Technologies and Wipro Ltd, and by foreign multinationals themselves.

"Companies like GE, American Express and British Airways have successfully demonstrated the benefits of the model, with total savings of a few hundred million dollars between them," Kandathil Jacob, a visiting professor at the management school at Bombay's Indian Institute of Technology, wrote recently.

Citibank, Dell Computers, Oracle and Lufthansa are among the other firms that have set up service centers in India, staffed by college graduates delighted to land a job paying 10,000 to 12,000 rupees (US$204 to US$245) a month.

The stream of service industry jobs flowing to India should increase now that its telecom market is deregulated, cutting charges in the one area where the nation -- as a remote service center -- compared poorly internationally.

Its phone rates were among the world's highest. A call from India to the US costs nearly a dollar a minute, about three times what a caller there paid to ring India.

In April, India cut rates for conventional phone services overnight by deregulating its international phone market.

The government also authorized Internet telephony, or Voice over the Internet Protocol (VoIP), which has greater ramifications for the international labor market.

The reason is simple.

"Soft switches deliver distance-insensitive services. Long distance goes away as a cost factor," said Arnold Englander, vice president for product planning and strategy at VocalTec Communications Ltd, a Jerusalem-based leader in the VoIP software industry.

Englander told a recent seminar on VoIP that with a Net-based phone system, an employee in Delhi would dial the same number of digits -- maybe four -- to ring a colleague in the same building or in Bonn.

"The cost, the access, the sound, would be the same."

As Englander noted, with distance no longer a technical or cost factor, decisions where to place call centers can be made entirely on other grounds.

Such as where wages and real estate costs are lowest. New Delhi was recently rated the world's second cheapest place to live, among 134 cities surveyed by the Economist Intelligence Unit. Bombay ranked 126th.

The cost of setting up operations can be cut further by renting or leasing space, computers and telecoms gear.

Some business groups estimate a multinational can typically recoup within a month the cost of setting up 10,000-strong operations in India.
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