India and Business Process Outsourcing

Abstract

Yes Yes

Full text

INDIA AND BUSINESS PROCESS OUTSOURCING
Thite, M. & Russell, R. (2007). India & Business Process Outsourcing. In Burgess, J &
Connell, J. (Eds.) Globalisation & Work in Asia. Oxford: Chandos Publishing
Introduction
Employment and work relations in India are as complex as Indian society itself, which, more
than ever, is characterized by extreme forms of uneven development. In this chapter we
largely focus on one sector of the economy, which is heavily implicated in the current phase
of globalisation - referred to as the IT/ITeS/BPO sector. This acronym stands for information
technology, information technology enabled services and business process outsourcing
industries. At the moment, it is investment in this sector which is powering the Indian
economy and which has drawn attention from around the world. It is sometimes said in India
that the country largely missed out on the opportunities and benefits of the industrial
revolution. However, the IT revolution is seen as means of redressing this situation in the
context of a developing knowledge economy. It is certainly the case that up until the recent
parliamentary elections of 2004, governments dedicated much of their policy emphasis
towards attracting both foreign and domestic IT/ITeS/BPO investment. In short, knowledge
and information based industries have very quickly attained a place of prominence in the
Indian economy and are centrally implicated with the processes of globalisation that are so
hotly contested. For these reasons, the bulk of the chapter concentrates on analysing emergent
employment relations in the IT/ITeS/BPO sector.
This chapter is based upon a month of field work which the authors carried out jointly in
India in 2005 as well as earlier field work conducted by Thite. In preparation for this work
the authors designed two open-ended, qualitative interview protocols, one for the operations
manager(s) and another for the human resources manager(s) at each organisational case study
site. Four of India’s large BPO providers participated in the study. The average number of
employees in these firms was 5500 and their call centres were spread across all the major
cities in India. Detailed information was sought in these interviews on topics such as
employee costs, business profiles, recruitment and labour market challenges, relationships
with clients, and work design. Interviews were conducted at each company’s headquarters. In
total eight managerial interviews were conducted, although in a number of cases, these
included sessions with part or all of the whole managerial team in charge of operations or
HR. Observer triangulation was practiced in each case. That is, both authors took notes,
entered them into computer files and then exchanged the files with each other in order to add
additional material that might have been missed.
This primary data is supplemented by other material that is referred to in the chapter.
Company, industry (such as National Association of Software and Service Companies –
NASSCOM) and consultant reports were accessed while in India. National and state level
Government documents pertaining to industrial relations statutes in general, and to the
IT/ITES/BPO sector specifically were collected. As were local Shops and Establishment Acts
and Rules, which establish local employment conditions. Other material that was used
includes census data and Bureau of Labour data, that were collected during the field trip to
India.

2
Unfortunately, it was not possible to engage in direct field observation during this project.
Each of the four Indian companies included in the study were strictly outsourcing providers
to overseas (mainly American) clients. Concerns over principle/provider confidentiality,
especially in the wake of damaging international press stories concerning data privacy,
proved to be too large a hurdle to overcome. Each of the companies did, however, agree to
administer an employee survey that the authors had designed as a counterpart to the
management interviews. Results from this work are referred to only en passant in this
chapter, which is intended to provide an overview of Indian employment relations in the
context of globalisation.
Before focusing on the Indian outsourcing phenomena, a general overview of the Indian
economy is provided in the next section. This is then followed by three sections that examine:
the growth and current state of the IT/ITeS/BPO sector in the Indian economy; labour and
employment relations in this sector; and the challenges and contradictions that are emerging
from the unique mix of a knowledge intensive industry set in the context of marginal social
conditions. A short concluding section draws the main themes and issues of the chapter
together.
The Indian Economy in the New Millennium
With a land mass less than 25 percent larger than the state of Western Australia, and an
economy that is ranked as the twelfth largest in the world, India passed the one billion
population mark early in the new millennium and is predicted to become the most populous
country on the planet within the next 20 years. It is necessary to keep in mind that the
overwhelming majority of this population, around three-quarters, remains on the land or lives
outside of the major cities. Just under 60 percent (58.2 percent) of the country’s labour force
is to be found in agricultural production, listed either as cultivators (31.7 percent), or
agricultural labourers (26.5 percent). Another four percent of the total workforce is included
within the category of household industry, while just over one-third of the labour force, (37.6
percent), lumped together in the residual ‘other’ category, which would include both
manufacturing industry and service provision (Census of India, 2001). Women are over-
represented in the agrarian labour category (39 percent of all recorded female workers,
compared with 21 percent of male workers) and have less than half the representation in the
industry and service categories (21.7 percent) that are recorded by men.
Official data also makes the distinction between the organised sector of the economy and the
unorganised. The former refers to public and private enterprises, which pay wages and
salaries, are covered by federal and state laws and maintain annual accounts. This sector
accounts for approximately 10 percent of the total labour force, with the remainder falling
outside of the official sector in small, informal undertakings that are often characterised by
underemployment and casualisation. Within the organised sector community, social and
personal service labour constitutes the largest element – 42 percent of all workers in this
category. This includes workers in both the expanding private sector and public sector
employment (Director General of Employment and Training, various years). Workers in
manufacturing employment account for 24.7 percent of the total, transportation another 11.3
percent, while employees in finance, insurance, real estate and associated business services
compose 6 percent of total employment in this sphere. The bulk of IT/ITeS/BPO
employment is located in this latter category.

3
All up, the combined IT/ITeS/BPO sector employs under 1 million workers out of a total
workforce (waged, salaried and other) that is approaching half a billion workers! It is difficult
to fathom a large new middle class being thrown up by these developments, and indeed it is
still the case that 35% of all Indians live on less than $1 US per day (Economist, March 5,
2005). Rather, we suggest that the importance of this sector is to be found elsewhere,
specifically in the changes wrought to trade patterns, as they affect India as an exporter and
her new found trading partners. In 1995, the top five exports (by value and in order of
importance) from India were gems and jewellery, garments, textiles, marine products and
leather ware (not including footwear). Ten years later the list reads as follows: software;
engineering goods; gems and jewellery; chemicals and related products; and textiles.
Software design chalked up $US 17.2 billion in exports in 2005, compared with 13.7 billion
for gems/jewellery (Gupta and Kumarkaushalam, 2005). India’s largest export market and
overall trading partner is the US, which accounted for 20% of exports, many in the IT/ITeS
field, followed by China (8.3%), UAE (8%) and UK (5%) (Economist, 2006). Even though
India’s share of global trade remains at under 1 percent, ($250 billion US in 2004), it is these
shifting trade patterns that have become synonymous with globalisation and, in the process,
have attracted considerable attention in both India and overseas (Sheshabalaya, 2005;
Kripalani and Engardio, 2005). Notably, IT/ITeS/BPO activity has been associated with
surpassing what had become known in the 1970-80s as the ‘Hindu rate of growth’. This refers
to economic growth rates, which although positive, lagged behind population growth. In the
first years of the new millennium (2001-2005) real economic growth ran at 6.5%, still well
behind China’s, but against population growth of 1.5% per annum (Economist, 2005).
The Indian IT/ITES/BPO Sector
Off-shoring, as part of global business realignment, is considered the third wave in global
expansion by companies, after global export and global production. IT services include
systems integration and information systems consulting, application development and support
as well as IT training services. IT-enabled Services (ITeS) cover a wide range of services,
depending on the nature of expertise, from:
 back-office data entry and processing, to
 customer contact services (such as complaints, tele-marketing, collections support), to
 corporate support functions (such as HR, finance, procurement, IT services), to
 knowledge services and decision-support (such as customer analytics, claims and risk
management and consultancy), and to
 research and development services (such as engineering design, content development
and new product design). (KPMG, 2004).
The global IT/ITeS market was estimated to be worth US$1,322 billion in 2003 and is
expected to grow to US$3,391 billion by 2012 at a compounded annual growth of 11%, while
the size of the ITeS market will continue to be around twice that of the IT services market
(Taskforce, 2003). India is quickly emerging as “the services-hub of the world” with a 24%
share of the off-shored IT/ITeS market in 2002; however, India’s share of the global IT/ITeS
market was still low at 0.8% in 2002. (KPMG, 2004). The Indian IT/ITeS sector is expected
to earn a revenue of US$28 billion in 2004-05 (Nasscom-a, 2005). This is expected to grow
to $148 billion by 2012, accounting for about 4.4% of the global market (Taskforce, 2003).
India’s bid for off-shore IT/ITeS business is driven by a number of factors. Most notably
there is the availability of an appropriately skilled human resource base that is estimated to

4
include 14 million tertiary educated graduates. Moreover, by international standards, even
highly skilled labour remains cheap. Salary levels although escalating (see below) still range
between one-tenth and one-fifth of that of equivalent jobs in the US. Finally, and more
controversially, according to some, the ability to generate better quality work, more
efficiently (with improved service levels of 5-10% across different parameters such as
customer satisfaction, response time, accuracy and speed) (KPMG, 2004) is a feature of out-
sourcing. However, it needs to be noted that it is difficult to measure efficiency levels at the
macro level in the absence of hard, empirical data. In particular, it is necessary to distinguish
between more productive work and more intense work. With regard to the latter topic, it
remains the case that the legal work week in India is still 8 to 12 hours longer per week (48
hours) than is the norm in Western economies.
The spectacular growth of the Indian software industry, which first took India global, in the
early 1990s has been mostly export led. The industry started its journey in the USA with the
on-site model, where it cheaply rented out Indian software programmers to work at client
sites under client supervision in the US. Thanks to factors such as Y2K projects and a
shortage of IT personnel in the USA, the on-site model worked so well that, by the close of
the1990s, Indians accounted for nearly half of the H-1B work permits, which are employer-
sponsored non-immigrant visas for temporary workers, issued by the US Department of
Immigration for IT-related occupations (Mittal and Goel, 2004).
Over the years, Indian software companies built a reputation for supplying large numbers of
cheap, but high quality IT personnel, pushing IT companies in the USA to continue to lobby
the US government to relax work permit regulations. With Euro conversion projects coming
on stream in the late 1990s, European companies followed the US example in hiring Indian
IT personnel, pushing up their demand as well as the profit margins of the Indian companies
that employed them. As the confidence in the service delivery capability of Indian companies
increased, part of the outsourced work (mainly coding) was shifted to India. In this way the
off-shore model of export led informationalism gathered steam.
By early 2000, the Indian software industry had firmly established its capability and
credibility as a strategic IT business partner using both on-shore and off-shore models. With
the crash of the dot.com bubble, overseas companies started cutting their IT budgets and in
the process, put pressure for increased efficiency at reduced cost on both their internal IT
departments as well as outsourcing providers. This coincided with multinational firms’
revaluation of their business processes, including back-office support functions, customer
contact and care and corporate support functions through such initiatives as business process
re-engineering. That is when business process outsourcing (BPO) came into being.
To most Indian software companies, BPO was an accidental opportunity and in many cases
was initiated by their overseas clients. They had to quickly set up subsidiaries to exploit this
new found opportunity which came in handy in the face of the downturn in the IT industry.
Another stroke of luck for the industry was the cheap availability of abundant and under-
utilised fibre optic cables laid under the sea by western companies during the e-commerce
hype generated in the 1990s and their increasing bandwidth capacity (Friedman, 2005). While
the Indian software industry took more than 10 years to mature and climb up the value chain,
the Indian ITeS/BPO industry has taken just 5 years (between 2000 and 2005) to do just that.
Many of the top Indian software companies, namely, Infosys, Wipro and Satyam, have now
set up subsidiary companies such as Progeon, Wipro BPO, and Nipuana, which are their
ITES arms.

5
According to NASSCOM, the premier trade body and the chamber of commerce of the IT
software and services industry in India, the Indian IT/ITeS industry earned an estimated USD
28.2 billion in 2004-05, of which IT services and software accounted for 58.6%, the ITeS-
BPO, 20% and hardware 21% (Nasscom-b, 2005). Today, there are around 3000 IT
companies in India currently exporting to over 150 countries with an employee base of
around 700,000. The top 5 Indian IT software & service exporters are Tata Consultancy
Services, Infosys, Wipro, Satyam and HCL (Nasscom-c, 2005).
There are over 400 ITeS/BPO companies in India that include a mix of captive units (wholly
dedicated set ups of both Multi National Companies and Indian companies accounting for
65% of the market) and third-party services providers with a total employee base of around
350,000 (Nasscom-d, 2005). In 2004-05, the ITeS-BPO segment witnessed a growth of 45%
to reach USD 5.2 billion that constituted 30% of the total IT-ITeS exports from India. The top
5 third-party (call centre & BPO) players are WNS Global Services, Wipro BPO, HCL
Technologies BPO, IBM-Daksh and ICICI OneSource. Reflecting complementary strengths
between IT and ITeS, the integration of IT-BPO contracts is becoming more common.
Nasscom also reports that “the ITES-BPO companies are gaining significant traction in
transaction processing; with more and more firms balancing voice and non-voice business
portfolios to diversify revenue and raise seat utilisation” (Nasscom-e, 2005).
The Indian ITeS/BPO industry is maturing very quickly. Today it includes, high-end business
services, such as knowledge services and decision-support (that is customer analytics, claims,
risk management and consultancy) and research and development services (eg. engineering
design, content development and new product design). These high-end services are part of
what is now called Knowledge Process Outsourcing (KPO) and they are expected to provide
over 40% of total Indian BPO revenues in 2010 (The Hindu, 2005a). In line with this growth,
the ITeS/BPO/KPO industry now employs not only generic graduates as Customer Service
Representatives (CSRs) but also MBAs, doctors, engineers and chartered accountants as
process executives. Even at the CSR level, the data collected by the authors in four Indian
companies suggests that more than 85% of employees are university graduates. This
compares with a figure of about 20% of their counterparts in Australia (see Russell’s study of
20 Australian customer contact centres) XX. Another interesting point of comparison is to be
found in the age demographics of the industry. Over 90% of employees in the Indian
ITeS/BPO industry are under 30 years of age (DQ-IDC, 2004). In our survey at the four
Indian BPO centres, 92% of the respondents (N=638) were under the age of 30. This
compares with 40% of Russell’s Australian call centre sample (N=1232) that were under 30
years of age.
The IT/ITeS sector has inserted itself at various levels of the value chain from low level, low
value services (such as code-writing and call centres) to complex and more profitable
functions such as data management, market analysis, consulting, and computer-aided design
(Chandler, 2005). However, this has not been a linear development progressing from low end
to high value activities over time. Rather, it is better stylised as a set of ad hoc opportunities
that began with IT, and then moved down the ladder into ITeS. It is now entering into KPO
with the outsourcing of medical diagnostic, legal, financial and other forms of professional
work from western economies. The growth of Indian IT/ITeS firms has been stellar,
occurring via mergers and acquisitions, through the expansion of operations overseas
(investments by Indian BPOs in such countries as the Philippines, China, Czechoslovakia and
Australia), and through strategic alliances with multinational companies. This form of

6
globalisation has entailed obtaining internationally recognised quality accreditation
certificates, adopting world-class HR best practices, and benchmarking with leading firms
from across the globe (ibid). Quality certification is a hallmark of the Indian IT/ITeS sector.
For example, 90% of ITeS/BPO companies have a dedicated quality department with 50%
having implemented various levels of ISO and 45% having Six Sigma and other certifications
(Nasscom-f, 2005).
Leveraging on human capital to overcome deficiencies in physical capital figures largely in
these processes and lies at the heart of current economic developments (Mittal and Goel,
2004). To date, this represents a unique, if untested, strategy for overcoming decades of
lagging performance. The absence of adequate infrastructure in India poses real problems for
development. For example, the nation’s patchy highway network includes just 124,000 miles
of road compared to China’s 870,000 (Chandler, 2005). Urban congestion on the roads and in
the skies is notorious. Rather than denigrating the importance of physical infrastructure,
many ‘new economy’ theorists (Reich, 1991; Florida, 2002) stress the importance of not only
physical infrastructure but also cultural amenities as a key to successful transition/prosperity
in the knowledge economy. Whether infrastructural inadequacies prove to be an
insurmountable obstacle to development, or whether the new economy of export led service
provision has peculiarities that render such infrastructure less important remains to be seen.
Meanwhile, many western firms are now looking at different ways of leveraging both
domestic and offshore markets. In the US, “leading-edge providers are upskilling US-based
agents to take on revenue generating as well as customer retention activities and offshoring
the support and service enquiries” (Datamonitor, 2005: 65). In Australia, the ANZ bank is
similarly increasing its operations roles in Bangalore and, at the same time, creating new jobs
and opportunities in customer facing areas in Australia (Jones, 2005). The implications of this
are considered later in this chapter.
Employment Regulation
This section examines the relevance of the Indian industrial relations system, specifically the
existing political/legal framework to the IT/ITES/BPO industries. Unsurprisingly, we come to
the conclusion that the national regulatory regime and the global BPO industry mainly exist
in different ‘worlds’. IT/ITES/BPO is largely regulated by the interaction of global capital
flows and local labour market dynamics while existing forms of regulation have been
marginalised. We begin by describing what those forms of regulation are. Next, we describe
the current HR-Employment Relations scene in the ITES/BPO sector. These dynamics have
important implications for both workers and other organisations in the IR system, such as
trade unions. The implications of this are also analysed.
Employment relations in India are regulated by a number of legal instruments, commencing
with the Trade Union Act of 1926. This Act, initially provided for the registration of trade
unions and, in the process, provided specific immunities from conspiracies in restraint of
trade and civil actions for breach of contract (Krishnamurthi, 2002). The legislation still
specifies a minimum membership of only seven workers for registration. This, in turn, has
given rise to a huge number of registered unions (64,817 in 1999), with a very small average
base (786 members) (India Labour Bureau, 2004).
The Trade Union legislation was silent on the question of union recognition by employers
and this remained the case until 1958, when the Standing Labour Committee of the Federal

7
Government devised protocols for representation and collective bargaining rights that were
agreed to by representatives of industry and labour. These were appended to the Voluntary
Code of Discipline, wherein management agreed to recognise the union which had the largest
membership constituency for any given establishment or industry. This could be determined
by either an examination conducted by the Ministry of Labour of the financial
records/membership of the contending unions or, where all parties, including the employer
agree, by way of a secret ballot conducted by the Ministry. To trigger recognition, the actual
union membership threshold is quite low – minimally 2 percent of the workforce in question.
In exchange for this, unions agreed to subscribe to a code of discipline of their own. This
includes such provisions as no strikes without notification, a renunciation of coercion, work
to rule tactics and sit-down strikes and a willingness to discipline officials and members who
act in disregard of the code, (Krishnamurthi, 2002, ch.6).
With respect to all of these undertakings it is important to keep two essential points in the
foreground. First, these protocols represented a voluntary undertaking on the part of business
and labour leaders. They may or may not be respected in any specific case. Union recognition
is not a statutory requirement of Indian employment relations law. As one commentator
reminds us, such “codes are virtually buried for all practical purposes and have become part
of industrial relations history” (Ratnam, 2001, p.42). In part, inter-union rivalry, (see below)
has militated against finding agreement on principles for union recognition. Secondly, under
the 1926 Act, union membership also remains voluntary. There are no legal provisions for
closed or union shop rules, or for the automatic check-off of membership dues.
Union recognition is also referred to in the 1947 Industrial Disputes Act. This omnibus bill
was designed to foster orderly industrial relations on the sub-continent (Sodhi and Plowman,
2001). Appended to the bill (Schedule Five) is a lengthy list of unfair labour practices, which
includes proscriptions against interference in union organising, including discrimination
against union members, the use of threats or coercion, including threats to shut down
operations, the creation of company or company dominated unions, or the refusal to bargain
in good faith with the recognised union. Employers are also forbidden from recruiting
replacement workers during legal strikes or employing casual or temporary workers on a long
term basis, although penalties for transgressions of such rules seem to be minimal.
The 1947 Act also establishes rules for the settlement of disputes involving wages, working
hours, occupational classifications, layoffs, retrenchments and technological change.
Depending upon the issue, a Labour Court may be established to deal with cases of
dismissals, the legality of strikes/lockouts, or the withdrawal of existing conditions while an
Industrial Tribunal may be created to process disputes over compensation, hours of work, job
classification, technological change or reductions in employment. Awards are made by the
Labour Courts, Industrial Tribunals or National Tribunals that have been established for that
purpose and are binding upon the parties unless vetoed or modified by the relevant state or
Federal government. From the available, if dated evidence, it appears as though settlements
through adjudication rather than collective bargaining have been the most pervasive form of
interest based settlement (Sodhi and Plowman, 2001, p.59) ). Recognised unions are given
statutory rights to represent workers in any disputes which come before a conciliation officer,
board, labour court or tribunal that is established under the Act.
In addition to specifying a host of unfair labour practices, the Industrial Disputes Act is
immediately relevant to two other areas of employment relations. First, it provides detailed
rules with respect to employer initiated changes (such as layoffs and retrenchments), which

8
first must receive approval from the appropriate court or tribunal and second, it criminalises
certain categories of industrial action. With respect to the former, in establishments of 100 or
more employees who have at least one year of service, workers are entitled to half their
normal pay for a period of 45 days in the event of a layoff being approved. One month’s
notice must be provided for any retrenchments and workers are again entitled to 15 days of
their normal pay for each year of service. The same provision also applies to permanent
closures, except here, the employer is required to provide 60 days advance notification. Any
other changes in the terms or conditions of employment must be preceded by a 21 day
notification.
On the union’s side, notice of strike action must be provided to employers two weeks before
such action is taken, while strikes and lockouts are outlawed during, and seven days after, any
conciliation hearings or for the two months following any Labour Court or Tribunal hearings.
Additionally, strikes are not permitted during the term of any conciliation award, which may
be for a period of up to three years. Existing strikes can also be prohibited once reference has
been made to the Act, with fines and jail terms imposed upon transgressors. All provisions
in the Act cover establishments and industries that have been declared a public service, but
the definition of such, contained in Schedule One of the Act, is very elastic. Governments can
rule that just about any activity is temporarily a public service, including manufacturing and
financial pursuits in the private sector. Thus, governments may choose to include or to
exclude various activities from the provisions of the Disputes Act as they see fit.
The laws regulating strike and lockout activity seem to be ‘honoured in the breach’. By no
stretch of the imagination has such activity ceased to occur in Indian employment relations.
The numbers of recorded strikes has declined dramatically since the early 1980s, falling by
more than 80 percent, although strikes and lockouts have become larger in the sense of
involving many more workers. Overall, the number of person days lost on account of disputes
has declined somewhat since 1981, but nowhere near as dramatically as the actual number of
disputes (India Labour Bureau, 2004). It would be incorrect to attribute any of these trends to
statutes that have been on the books for over 50 years. Rather, the foreign exchange crisis of
1990-91, the turn towards the IMF and the subsequent adoption of neo-liberal remedies, as
elsewhere, had a chilling effect on employment security, which made its effects known in the
number of recorded industrial disputes.
Overall, and given the ambit of the Industrial Disputes Act, it can be seen that it is weighted
in terms of the status quo (Chibber, 2003). Proposed changes for shutdowns, labour force
reductions, or other significant alterations can quickly be removed from the realm of
managerial prerogative and become the subject of an award. The whole tenor of the Indian
system is control through protection, a logic that is largely at odds with the market rationality
of globalisation. And although this is frequently an object of complaint, in truth requirements
such as those contained in the Industrial Disputes Act, have had little impact on the
IT/ITES/BPO sector. There are several reasons for this.
First, existing legislation was mainly intended to apply to and protect low wage manual
workers. Those earning more than 1,600R per month ($US 35) and/or exercising supervisory,
administrative or managerial tasks are exempt from the Industrial Disputes legislation. This
would include most of the IT/ITES/BPO sector, where for example, average starting salaries
in call centres are many times that amount. In other words, salaries in ITES are at a level
which exempts workers in the sector from essential features of the system, but still renders
them hugely inexpensive by western standards. Second, to date, the main issue for Indian

9
IT/ITES/BPO providers has been recruiting and retaining labour, not shedding it, (see next
section).
Given this mix of conditions, or what might be best described as a highly unstable
‘equilibrium’, it is still the case that despite reports of spontaneous job actions at individual
call centres, the IT/ITES/BPO sector remains completely union free. To understand why this
is the case, and to appreciate the challenges that union organising in the IT/ITES/BPO sector
face, it is necessary to revert back to the IR context once again.
As part of this legacy, trade unions have been described as a “frail but enduring part of
India’s labour relations” (Ratnam, 2001). As we have seen, statutes governing unions have
been permissive of the creation of very small entities. As a result, only 2 percent of
registered unions have a membership exceeding 5000, while 40 percent have less than 100
members (Sodhi and Ploughman, 2001, p.140-156). Historically, this has gone along with
excessive fragmentation. Thus, there are no less than a dozen central labour organizations
operating in India, each with its own political affiliations, to which only 20 percent of
registered unions are affiliated (Ratnam, 2001). As a result, specific enterprise unions also
proliferate. Multiple plant/office unionism has added immensely to the complexity and
divisiveness of the situation. It has resulted in a situation described by one analyst where “the
arduous task of organizing a trade union from scratch has suddenly lost is relevance: the
easier path to ascendance as a leader is to take over existing organizations.” (Ramaswamy,
1988). This has gone along with an intense politicization that has left unions beholden to
specific political parties, as well as dependent upon state patronage and reliant upon
professional outside leaders (Chibber, 2005). None of these traits are favourable to an
organising model (Bronfenbrenner, Friedman, Hurd, Oswald and Seeber, 1998) of union
growth into information and knowledge based industries. As result, overall union densities in
India are estimated to be about one-third of the organized sector of the economy or about 1
percent of the total societal labour force (Ratnam, 2001, p.32).
On top of the historical legacy and peculiarities of trade unionism in India, more recently,
various state governments have announced several special promotional schemes that
encompass a comprehensive package of incentives and policies for the IT/ITES/BPO
industries and further add to the uniqueness that is encountered in this sector. Most of the
states in India have Software Technology Parks (STPs) and Export Processing Zones (EPZs)
that offer first world infrastructure within the STP gates. With respect to changes in existing
labour codes, a majority of the states have either promulgated a government order or
notification permitting all establishments in the respective jurisdictions engaged in IT-
enabled services (including call centres) to: work on national holidays; allow women to work
through night shifts; and permit offices to function 24 hours a day, all through the year
(Nasscom-g, 2005), although such practices have traditionally been banned through urban
Shops and Establishment Acts (Confederation of Indian Industry, 2004).
For example, the 2003 IT and ITES Policy (Nasscom-h, 2005) of the state of Maharashtra (of
which Mumbai, the commercial hub of the country, is the capital) and which accounts for
20% of the country’s exports, aims to “create hassle-free and industry friendly, 24x7x365
working environment” for the sector by amongst other things:
o Relaxing working hours, work shifts and employment of women under Shops and
Establishments Act,
o Applying all relaxations under the Industrial Disputes Act and Contract Labour Act to all
IT and ITES units in the state on par with Special Economic Zones,

10
o Notifying IT & ITES units as continuous process units
o Issuing special passes to vehicles transporting women workers of IT & ITES units during
night times,
o Declaring IT & ITES units as public utility services and essential services (Nasscom-h,
2005).
Similarly, the state of Andhra Pradesh’s “AP Policy on Information Technology Enabled
Services” dated 29th January, 2002 also commits to providing a supportive environment by
amending the AP Shops and Establishments Act to allow ITES companies to:
o Employ women and young persons (between the age group 18-21) during night shifts,
subject to provision of adequate security and transport
o Have “flex-timing” by asking an employee to work for more than 8 hours a day, without
exerting an additional financial burden on the companies, in terms of overtime payments,
as long as the statutory requirement on the maximum weekly working hours of 48 hours
is respected
o Operate 24 hours a day and 365 days in the year, and
o Reduce the procedure involved in retrenching employees, if certain conditions are
satisfied (Nasscom-i, 2005).
Currently, the IT/ITeS sector is devoid of the presence of trade unions. Existing unions
appear to be unprepared to enter the new economy, but there is also a growing sense, as one
manager put it “it’s not a question of if, but of when” a trade union presence will develop.
Considering the massive increase in employment in the ITeS industry and work
environments characterised by round the clock work shifts, monotony, burnout and
performance based employment, the question of whether trade unions will enter this new age
industry raises heated discussion amongst politicians, trade unionists, industry analysts and
employers. The employers’ view is that there is no need for an external entity to represent
employee voice because the IT/ITeS sector needs more people than it can get due to its
phenomenal growth rate. This fact is said to promote best practices in people management
and according to Bhargava, the former CEO of Progeon, “there is more that is good here than
it has ever been in any single economic sector of India”. Attrition rates in the industry,
however, testify to alternative realities. More than likely, should the manager’s prognosis
cited above come to pass it will be at individual worksites, generated by specific grievances,
and will assume the form of enterprise unionism. In the meantime, internal employment
relations are largely regulated through HR practices, which are described in the next section.
HR Issues & Challenges
For an industry that is labour intensive and one that has experienced phenomenal growth in a
short period of time, the implications for human resource management (HRM) of Indian
ITES/BPO are enormous. Based on our research and secondary data, we conclude that the
Indian IT/ITeS industry faces five important HR issues and challenges, namely, acute skill
shortages, attrition, a leadership vacuum at the team level, escalating labour costs and a
squeeze in profit margins. These are discussed in detail below.
Skill Shortages
Offset against the huge pools of surplus labour that define the Indian economy in general, are
the employability demands of the BPO sector. Each component of the sector requires tertiary
level education in a society where literacy rates hover around 65 percent for the population as
a whole and at 45% for females. Jobs in IT minimally require a tertiary degree in engineering,

11
computer science or mathematics, while call centre and data processing operations insist
upon a Bachelors’ level degree and high levels of proficiency in spoken and written English.
Paradoxical as it may seem, it is currently a sellers market for labour in this particular enclave
economy. It is estimated that by 2012, the labour power requirements for the off-shore Indian
IT/ITeS markets, as well as domestic and captive IT/ITeS support requirements, will add up
to 4-6 million workers (KPMG, 2004). While India could be one of the few countries with a
qualified surplus labour pool by 2020, there is a possibility of a shortage in terms of skilled
personnel for IT/ITeS to the tune of about half million workers, even in the medium term,
that is, by 2009. (KPMG, 2004: 19 & Taskforce, 2003: 6).
The employable labour shortage is already impacting on the performance of the Indian
IT/ITeS industry today in terms of attrition levels and wage trends (see below). The question
here is of quality, not quantity. While it is estimated that approximately 17 million people
will be available to the IT industry by 2008 (Nasscom-j, 2005), the problem relates to their
employability and trainability. “The issue of manpower gap is not as much about
institutional seat availability as about the nature of skills and training provided in these
institutions”. (Taskforce, 2003: 6).
According to one report, “Different categories of work at the agent level … will require
specific qualifications. These must be supported by some necessary delivery-related skills,
such as language skills, analytical skills, computer proficiency, customer service orientation
and behavioural traits” (KPMG, 2004: 34-36): While these are common requirements for
CSRs anywhere in the world, in the context of India, staff need to be equipped with
additional skills, such as language neutralisation, cross-cultural skills and familiarity with
products that are not commonly used in India, such as credit cards. For high-end R&D work,
Indian employers are constrained by the low base of available PhDs, the low enthusiasm of
higher educated staff for R&D activities and the low growth in R&D staff (KPMG, 2004: 53;
Saini and Budhwar, 2004).
To address the manpower requirements, the Ministry of Communications and Information
Technology’s Taskforce on meeting the HR Challenges in IT and ITES (2003: 12)
recommends addressing the entire development lifecycle of human resources, from attracting
the right people through to education, certification, deployment and retraining. This requires
close cooperation and coordination between governments, education institutions, industry
bodies and individual firms. NASSCOM, the industry body, has already moved to establish a
common certification system for some of the standard skills. For example, it recently
launched the NASSCOM Assessment of Competence (NAC) for potential employees in the
BPO industry as an industry standard assessment program with the aim of ensuring the
transformation of a ‘trainable’ workforce into an ‘employable’ workforce (The Hindu,
2005b). Some states, such as Karnataka and Andhra Pradesh, have already moved to establish
centralised testing and certification for potential employees in the industry (KPMG, 2004: 65-
66). However, the breadth and depth of skills and competencies required for the industry are
of such a nature that the scope for effective standardisation of skill testing and training will be
quite limited. Therefore, KPMG (2004: 63) recommends a hybrid model with base-level
common testing and certification supported by company-specific programs.
One of the leading BPO firms that we studied is engaged in educating the public and local
colleges in enhancing the employment reputation of ITES work, tarnished by the social
stigma of working unsocial hours and allegations of sweatshop like conditions. Other
companies also following suit with open-days for the parents of young staff to see first hand

12
what the ITES industry is all about. To spread employment networks beyond tier one cities,
such as Bangalore, Delhi and Hyderabad, the ITeS companies are also moving to set up
facilities in tier two cities as well. Additionally, some Indian ITeS companies have started
attracting “non-employed” people, such as retiring army personnel, teachers and housewives
(KPMG, 2004: 73)
Attrition
This currently seems to be the biggest challenge currently facing the ITES/BPO sector. The
‘race for talent’ as one HR manager described it between BPO suppliers is fierce, and with
turnover rates that are cited to be between 90 and 120 percent per annum in the ITES sector
(Datamonitor, 2005 and interviews), the poaching of workers has created much distrust
among industry participants. Typical of these dynamics, is one firm of 2600 CSRs where the
authors carried out field work. Just to keep the workforce on an even keel, 300 agents per
month need to be recruited, while half of the centre’s 100 percent quit rate occurs within the
first three months of an agent commencing work. These figures mirror overall ITeS/BPO
corporate experience where, particularly in voice based call centres, the average tenure of
CSRs is less than 12 months. Of the four ITeS companies that the authors have first hand
experience with, employee attrition was hovering at above 100% except in one where it was
said to be 45%, possibly because the bulk of its operations are non-voice. Absenteeism ranges
from 2-8% on a daily basis (Business Line, 2004). Some companies try to artificially bring
down the attrition figures by excluding those who leave during the training/induction period
or by omitting involuntary turnover, such as dismissals due to poor performance.
The reasons for attrition are manifold. One survey identified the following top five reasons
for turnover in the industry: dissatisfaction with salaries (47%), lack of career opportunities
(45%), leaving to pursue higher education (29%), illness (28%) and physical strain (22%)
(DQ-IDC, 2004). The average working day in the organised sector of the economy,
including ITES/BPO is nine hours, which includes an hour of break time, or over an hour per
day longer than is typical of economies such as Australia’s. To this can be added lengthy
commuting times in company supplied vehicles to and from work on clogged infrastructure.
However, according to the survey, the average employee satisfaction score remained high at
80.7% with bigger companies achieving higher satisfaction ratings. As jobs are not being
seen as careers, significant numbers of people leave to pursue higher education (Datamonitor,
2005).
In the interviews that the authors conducted with the HR managers, marriage and pursuing
higher education were frequently quoted as the main reasons for attrition. The night shift
work that most of the employees are engaged in causes them, particularly, women, to leave
this employment when they get married; hence, marriage is given as the reason for attrition.
In addressing the issue of employees leaving to pursue higher education and greener pastures,
some companies are beginning to explore the possibility of providing scholarships, tuition
reimbursement and special arrangements with education institutions that would allow them to
offer courses in the workplace - thereby enabling employees to pursue higher education.
However, part-time employment and flexi-hours are rarely practiced. Internal promotion is
another measure frequently taken to address attrition but its scope is limited. In companies
that do undertake both IT work and ITES there is little movement from the latter to the more
highly skilled work of IT support and development. Within the ITES sector there is little
sense of opportunity for significant career development. Performance bonuses, which are
very popular in Indian call centres, are also used to prevent job-hopping but the intense ’race
for talent’ temporizes the effects of such schemes. Most big companies provide various

13
facilities, such as transport and subsidised meals and conduct frequent ‘town-hall meetings’
to ascertain and address grievances.
Escalating Wage Costs
Rising wage costs are an increasing worry for the industry and its peak organisation
Nasscom. Although salaries are high by the standards set by the Industrial Disputes Act and
regional minimum wage rates, there is still pressure to increase them further as occurred
between 2000 and 2003 when salary costs increased from USD 200/ month to USD
330/month. As a result of this, company operating profit margins decreased from 30-40% to
17-25%. This has made the industry as a whole in India less competitive on a global scale and
less attractive for potential entrants (KPMG, 2004: 29).
An escalating wage bill is driven by a variety of factors including: fierce competition for
skilled personnel, particularly for those with a year or more of experience; the increased
emphasis on performance bonuses; and poaching via hefty salary increases especially on the
part of the multinationals. Anecdotal evidence suggests that between 1995 and 1999, Indian
software salaries increased by 45%, whereas in the USA, the increase was only 21% (Mittal
and Goel, 2004). In 2005, India had the best average pay increase in the whole of Asia at
14.1% as against China at 8.1%. The pay hikes in the Indian IT and ITeS industry were even
higher at 16% and 15.4%, respectively (Sify, 2006). The performance based variable pay in
one IT company varies from 30-50% at higher levels and 7-15% at lower levels (Saha and
Chatterjee, 2004). Add to this employee transport costs funded by the employer, which are
peculiar to India due to the poor transportation infrastructure. One company where the
authors undertook field work logged 60,000 kms per day in providing transportation to ferry
the workforce between home and the office! Food vouchers, which are supplied for company
canteens, are also a standard ‘benefit’ and they account for another 15% or so of total
employee costs, according to the managers who were interviewed for this study. This is
further compounded by the ever recurrent recruitment costs arising out of high attrition rates
and training periods which may be prolonged through having to include extra modules in
language and culture.
Thus, one can see the cost advantage of the IT/ITeS sector being eroded. However, according
to some analysts, “as long as productivity and the value of work done are high”, this should
not pose a serious problem in the short to medium term (Mukherjee, 2005). Clearly, with
basic wage costs (wages minus associated costs such as transportation and bonuses) in ITES
being only about 10% of Australian wages there is still room for manoeuvre. Indeed, the
model of employment we have been describing is mainly sustainable in the context of very
low basic wages.
A Profit Squeeze
Clients on multi-year contracts with BPO providers expect costs to fall over the course of the
tender as the provider becomes more experienced and familiar with the client’s products and
markets. These expectations are forwarded on to the supplier with multi-year contracts that
reflect the expectation of declining costs being shared with the client. However, given the
levels of turnover in the industry, and the associated costs of recruitment, training and
wage/benefit competition, diminishing unit costs over time are anything but a foregone
conclusion. Instead, training costs are more likely to remain constant, while both wage bills
and associated costs such as workforce transportation are under pressure to rise, especially
with rapidly escalating energy costs. BPOs can quickly find themselves being squeezed,
while this pressure is passed on to the workforce in terms of work expectations and

14
heightened levels of work intensity, which feed back into the attrition and related problems
that we have already discussed. In this manner, what was a ‘virtuous circuit’ for the industry
may be on the verge of turning into something quite different.
Supervisory Skill Vacuum
Leadership and supervisory skills shortages, particularly at the team/project level are another
challenge to the IT/ITeS sector (Agrawal and Thite, 2006 and 2003). It is estimated that it
takes about five years for a call centre market to establish its own middle management
capabilities and India is still a couple of years behind before “all parts of the market are
sufficiently staffed from within” (Datamonitor, 2005). NASSCOM, the industry’s apex
body, has moved to address this issue by instituting a “Certification Program for Building
Frontline Managers” for quality analysts and team leaders (Nasscom-k, 2005).
Conclusion
In the 21st century, the world of work is changing rapidly both in manufacturing and services.
In the last century, most of the blue and white-collar work was conducted in developed
economies and in-house. Just as falling transportation costs have enabled the globalisation
process to separate the geography of industrial production and consumption with countries,
such as China, emerging as new manufacturing leaders, the spread of the internet, with cheap
and abundant telecommunications bandwidth, has enabled businesses to outsource white-
collar work to specialist outside suppliers, with countries, such as India emerging as
important hubs for producing services for consumption at the other end of the fibre-optic
cable (Edwards, 2004).
Apart from its sheer size, India currently constitutes an intriguing part of the globalization
story for its pioneering of what can be termed an Export Led Services Provision (ELSP)
model. Today, anybody who visits India will see that changes are everywhere and the country
is well and truly on the move. It still remains a country of complete contrasts – five star
hotels surrounded by slums, white collar workers rushing past unskilled labourers using
primitive technologies, new globally branded cars navigating congested roads along with
antiquated models, free ways and flyovers that suddenly lead to unpaved, snarled roads and
so on.
Optimists such as Akshaya Bhargava, the former CEO of Progeon (the ITES arm of the
globally reputed Indian IT multinational, Infosys), argue that what the IT industry did to India
during the 1990s is akin to an “underwater earthquake” (The Business Standard, 2004). He
asks a pointed question, “if half a million people (employed by the IT industry) can transform
India in 10 years, imagine what 12 million (expected to be employed by the IT/ITeS sector by
2014) can do”? According to him, this invisible, but real rising tide, will create a tectonic
social shift, improving the lot of what is soon to be the most populous nation on earth. Its
imprint on the world is already unmistakable. Yet this begs larger questions.
Currently, the BPO sector appears poised on an unstable knife edge. It involves a young,
highly educated workforce conducting often routine work for which, in many cases, it is
patently over qualified. As a result, the explosive growth of BPO in India has also given rise
to startling attrition rates and working conditions that, although perhaps (temporarily)
acceptable in urban India may well prove to be far short of employee aspirations.

15
Will India become the first successful case of Export Led Services Provision (ELSP) in the
same way that the Asian Tigers have successfully pursued and brought to fruition a model of
Export Led Industrialisation (ELI)? Or will the ELSP economy remain an enclave or ‘island’
economy as is currently the case? Can an ELSP model develop in the absence of political
coordination and coherence, or without massive public investment in physical infrastructure,
or will neo-liberal policies prove sufficient to launch a new era of socio-economic
development on the sub-continent? Despite the spectacular growth and visibility of the
IT/ITES sector, it is still largely irrelevant to the vast majority of Indians. Still, there is no
mistaking the changes that IT/ITES/BPO have brought. While the Indian economic elephant
is certainly stirring and moving, only time will tell whether its insertion into the global
knowledge economy will bring with it societal standards befitting the 21st century, or new
forms of economic dependence.
References
Agrawal, N. M. & Thite, M. 2006. ‘Nature & importance of soft skills in software project
leaders’. Asia Pacific Management Review, 11(2), 405-413.
Agrawal, N. M. & Thite, M. 2003. ‘HR issues, challenges & strategies in Indian software
services industry’. Intl. Journal of Human Resources Development and Management, 3(3),
pp. 249-264.
Bronfenbrenner, K., Friedman, S., Hurd, R., Oswald, R., and Seeber, R. 1998. Organizing to
Win: New Research on Union Strategies. Ithaca: Cornell University Press.
Business Line. 2004. ‘Attrition, absenteeism bug BPO cos’. April 22nd.
Census of India 2001. www.censusindia.net. T 00-009: Distribution of workers by category
of workers.
Chandler, C. 2005. ‘India on the move’. Fortune. October 31, 2005.
Chibber, V. 2003. Locked in Place: State-Building and Late Industrialization in India.
Princeton: Princeton University Press.
Chibber, V. 2005. ‘From Class Compromise to Class Accommodation: Labor’s Incorporation
into the Indian Political Economy’ in Ray, R. and Katzenstein, M. (eds), Social Movements In
India: Poverty, Power and Politics. Lanham MD: Rowman and Littlefield.
Confederation of Indian Industry, Northern Region. 2004. ‘Driving Growth Through Reform:
A comparative Analysis of Labour Practices in Select Northern Region States’.
Datamonitor. 2005. The future of contact centre outsourcing in India and the Philippines.
February, 2005.
Director General of Employment and Training (various years). Employment Review. Delhi:
Government of India
DQ-IDC. 2004. ‘India BPO Employee Satisfaction Survey’
http://www.bpo.nasscom.org/artdisplay.aspx?art_id=3709&cat_id=609 downloaded 9th
December, 2005

16
Economist, 2006. http://www.economist.com/countries/india/profile.cfm?folder=Profile-
FactSheet
Economist. 2005. http://www.economist.com/countries/India/index.cfm
Edwards, B. 2004. ‘A world of work’. The Economist. November 11, 2004.
Florida, R. 2002. The Rise of the Creative Class: and how it’s transforming work, leisure,
community and everyday life. New York: Basic Books.
Friedman, T. L. 2005. ‘The world is flat: A brief history of the twenty-first century’. New
York: Farrar, Straus & Girou.
Gupta, A. and Kumarkaushalam.. 2005. ‘The Changing Face of Indian Exports’, Business
Today, November, 6th.
India, Labour Bureau (2004) Indian Labour Yearbook. Delhi: Ministry of Labour,
Government of India.
Jones, C. 2005 ‘ANZ jobs head to India’, The Courier Mail, November, 29th.
KPMG. 2004. ‘Strengthening the human resource foundation of the Indian IT enabled
services industry’. Report by KPMG Advisory Services Private Limited in association with
NASSCOM under the aegis of the Department of IT, Ministry of Information Technology
and Communications, Government of India.
Kripalani, M. and Engardio, P. 2005. ‘The rise of India’. BusinessWeekOnline.
http://www.businessweek.com/magazine/content/03_49/b3861001_mz001.htm downloaded
on 9th May, 2006.
Krishnamurthi, S. 2002 Commercial’s Commentary on Trade Unions Act, 1926 As Amended
by Trade Unions (Amendment) Act 2001. Delhi: Commercial Law Publishers.
Mittal, A. & Goel, S. 2004. ‘Globalization and Indian IT industry: A strategic perspective’. In
Information technology: Issues and challenges of globalisation. New Delhi: Indian Institute
of Foreign Trade.
Mukherjee, A. 2005. ‘India’s software dream run is far from over’. Bloomberg. June 10th
2005
Nasscom-a. 2005. http://www.nasscom.org/strategic2005.asp downloaded on 9th May, 2006.
Nasscom-b. 2005. http://www.nasscom.org/articleprint.asp?art_id=4163 downloaded on 27th
November, 2005.

17
Nasscom-c. 2005. http://www.nasscom.org/articleprint.asp?art_id=4413 downloaded on 29th
November, 2005.
Nasscom-d. 2005. http://www.nasscom.org/articleprint.asp?art_id=4154 downloaded on 27th
November, 2005.
Nasscom-e. 2005. http://www.nasscom.org/articleprint.asp?art_id=4400 downloaded on 29th
November, 2005.
Nasscom-f. 2005. http://www.bpo.nasscom.org/artdisplay.aspx?cat_id=588 downloaded on
29th November, 2005.
Nasscom-g. 2005. (http://www.bpo.nasscom.org/artdisplay.aspx?cat_id=563 downloaded on
27th November 2005)
Nasscom-h. 2005. (http://www.bpo.nasscom.org/download/Maharashtra%20ITeSPolicy2003.pdf
downloaded 23rd December.
Nasscom-i. 2005. (http://www.bpo.nasscom.org/download/AP%20ITES%20Policy.pdf downloaded on 23rd
December.
Nasscom-j. 2005. http://www.nasscom.org/articleprint.asp?art_id=4728 downloaded on 29th
November, 2005
Nasscom-k: 2005. http://www.nasscom.org/artdisplay.aspx?cat_id=869 downloaded on 29th
November, 2005
Ramaswamy, E.A. 1988. Worker Consciousness and Trade Union Response. New Delhi:
Oxford University Press.
Ratnam, V. 2001. Globalization and Labour-Management Relations: Dynamics of Change.
New Delhi, Sage.
Reich, R. B. 1991. The work of nations: Preparing ourselves for 21st century capitalism. New
York: A.A.Knopf.
Saha, A. & Chatterjee, S. 2004. ‘Human resource and cultural dynamics of global IT
companies’. In Information technology: Issues and challenges of globalisation. New Delhi:
Indian Institute of Foreign Trade.
Saini, D. and Budhwar, P. (2004) ‘HRM in India’, in Budhwar, P. (ed), Managing Human
Resources in Asia-Pacific. London: Routledge.
Sheshabalaya, A. 2005 Rising Elephant: The Growing Clash with India over White-Collar
Jobs and its Challenge to American and the World. Delhi: Macmillan.
Sify. 2006. ‘India Inc gave heftiest pay hikes in Asia’.
http://headlines.sify.com/news/fullstory.php?id=14136242 downloaded 3rd May, 2006

18
Sodhi, J.S. and Plowman, D. 2001 Economic Change and Industrial Relations: India and
Australia. Nedlands WA: Scholastic Press Australia.
Taskforce. 2003. ‘Taskforce on meeting the human resources challenge for IT & IT enabled
services’. Government of India, Ministry of Communications and Information Technology.
Department of Information Technology. 18th December 2003.
The Business Standard. 2004. ‘Akshaya Bhargava: The underwater earthquake’. July 23rd,
2004. http://www.nasscom.org/artdisplay.asp?Art_id=3015 downloaded 9th May, 2006.
The Hindu. 2005a. Knowledge services: Leveraging Indian talent. The Hindu Survey of
Indian Industry 2005. Chennai: The Hindu.
The Hindu. 2005b. ‘NASSCOM programme for future BPO workers’. October, 14th.