Recession impacts salaries, attrition in Indian BPO sector

Earlier this month, the association that supports and promotes India’s business process outsourcing predicted a bright future for the sector. While the past year has presented challenges, there is undoubtedly strong growth ahead, NASSCOM said at the CEO Summit 2009.

In fact, Som Mittal, the president of NASSCOM, forecast that outsourcing to India is likely to increase threefold by 2020, earning aggregate revenues of $225 billion. "While the short-term challenges exist, the potential for this industry is tremendous and the industry will not be demand constrained," he said.

These are optimistic words for a sector that is accustomed to robust growth, with many graduates aspiring to work for one of the country’s top outsourcing companies. In recent years, salaries in the sector have grown in the double digits on an annual basis, while employees have had their pick of open positions. However, the recession has changed "business as usual" at India’s top BPO firms.

Rethinking salaries

There are plenty of signs indicating that Indian outsourcing providers may be rethinking their hiring and salary strategies in the wake of the global downturn.

The recession has resulted in declining revenues for the country’s major outsourcing providers and also had a knock-on effect with regard to employees’ pay. According to a BusinessWeek article, salaries are flagging in the sector. After years of continually strong salary growth, IDC noted that this year the average wage increase for outsourcing industry employees was only 1.4 percent.

The article also describes how employers at the country’s largest BPO providers have been freezing salaries and cutting pay for software engineers and other employees as a way to maintain their own growth as order volumes contracted. Many companies had been overstaffed at the beginning of the year, meaning that a number of cutbacks were required.

"These drops [in employee salaries] are not surprising in a year where the IT companies had taken the scissors out to trim flab, nonperforming employees and done away with the bench," Ibrahim Ahmed, group editor of Indian IT magazine Dataquest, told BusinessWeek.

While workers may not be happy about stagnant salaries, the trend could benefit India’s competitiveness as a global offshoring destination. In recent years, a number of analysts have suggested that rising wages could knock the country off itss place as the most attractive overseas outsourcing location.

According to oDesk data, the average wage commanded by an India-based freelance provider is $10.91 – just around the oDesk average and higher than some of its competitor countries, such as Pakistan. At the same time, quality ratings are lower than might be expected. Indian workers’ typical feedback scores hover around 4.12, which is below the overall average.

Less employee turnover

The downturn has also had an effect on the level of worker turnover experienced at BPO firms. In November, LiveMint.com reported that in pre-recessionary days, employees stayed with the same company for an average of 11 months.

But concerns about job security have prompted people to stay in the same role for longer. The churn rate in the BPO sector fell from 35 percent in 2007 to under 20 percent in the third quarter of 2008, according to LiveMint. And BusinessWeek says that current attrition rates are close to 15 percent.

This trend may benefit the industry in the long term, as workers gain more expertise by working for longer at the same job. Samir Chopra, president of the Business Process Industry Association of India, told LiveMint.com that "there are less jobs on the job market, but there is also more maturity in the job market."