India calling

Prudential’s decision last week to shift a customer service centre to India highlights its appeal as a call centre destination – and the damage that could be done to UK demand. By Amanda Seidl Back in August, the chairman of HSBC caused a stir when he told his shareholders that workers at the bank’s processing centres in India and China were better than those in the UK. “They’re quicker at answering the phone, highly numerate and keen to come to work every day.” The man from the Pru was evidently listening. Last week, Prudential announced that it was to establish a service centre in Bombay (Mumbai to the locals), “to improve customer service levels and reduce costs for the group’s UK insurance operations”. Some 850 Prudential jobs will go in Reading as a result – and, potentially, 120,000 sq ft of office space could be added to the 1.8m sq ft already vacant there. Consultancy firm Accenture predicted in February that by 2010 around 20% of all call centre jobs in the UK insurance industry would go to India. Currently, five call centres a month are being opened in the subcontinent. India’s rise as a call centre location has been highlighted by a survey of 150 leading UK contact centre operators by recruitment company Adecco, published this week. This found that the biggest international threat to the UK call centre industry is felt to come from India, with nearly 60% of respondents mentioning this emerging market as a possible destination for relocation. “There is an increasing threat to UK call centre jobs from places such as India and South Africa, where the labour pool is large and operating costs are much lower,” says Richard MacMillan, managing director of Adecco. The writing has been on the wall for some time. According to Deloitte & Touche research published in February, call centres are getting smaller as technology does away with the need to house as many staff as before. While the number of centres being built in 2001 was up 33% on 2000, the number of jobs created fell by 22% and the average of 396 people employed per project dropped to 236. “With 400,000 people employed in contact centres in the UK, the health of the sector is vital to local economies,” says MacMillan. Adecco’s survey ranks Harrogate as the top destination for operators, followed by Dunfermline, Fareham and Gateshead. Potential savings from relocation Although the UK’s call centre industry is still growing, and is predicted to employ 3% of the working population by 2008, emerging countries are making huge strides in wooing multinationals. “Anyone employing over 1,000 people in a UK call centre could make big savings by relocating to India,” claims Kelly Bains, Adecco’s director of managed services. “So there are at least 44 UK operators which must be considering moving.” India’s success in winning outsourcing business is already evident. The list of multinationals setting up back offices in the subcontinent is starting to read like a Who’s Who of the global services sector (see table). In an era of cost-cutting, India can offer both cheap labour and cheap office space. A graduate with at least one year’s call centre experience is paid around £100 a month. Perks, such as travel to work arrangements, free lunches and other benefits might total another £30 a month. But lower salary bills are only half the story. Corporations are also attracted by the Indian employment regulations that do not require employers to insure employees or provide company pension schemes. In the so-called “white-collar call centre and back office jobs”, there are no trade unions and the culture is one of “hire and fire”. Although holidays are a statutory 25 days a year plus 12 days for religious and national holidays, labour costs are 10-25% of UK costs. All of which would be irrelevant if productivity and accuracy were poor, but they aren’t. For example, financial services giant GE Capital is probably the biggest back office operator in India, and is expanding at a rate which suggests highly satisfactory results. It has built up its operations in India since 1996, when it started with a low-key industrial building in Gurgaon, a new city close to Delhi International Airport. It now occupies a 250,000 sq ft purpose-built facility in Delhi, and employs 12,000 staff processing 10% of GE Capital’s global work. No wonder the UK is losing out. As Adecco’s survey highlights, in this country call centre operators are experiencing worsening problems when it comes to recruiting and retaining good staff. “Employers are placing more emphasis on workforce availability, suitability, quality and flexibility than they are on location. Attrition rates of 25-40% and poor skills are driving businesses to relocate their operations,” says Bains. “Offshore operations may often face the same issues; however, if the choice comes down to having the same quality of service provision but at lower cost, then the offshore option is particularly viable. India is an attractive proposition when it comes to staff skills because call centre salaries there are equal to trainee professional wages so they appeal to graduates.” As well as offering cheap skilled labour, India can provide efficient property at a fraction of UK prices. The typical rent for modern, air-conditioned space with floorplates of 10,000-15,000 sq ft in Gurgaon is £6-8 per sq ft pa. Management charges will be relatively high, at about £2 per sq ft, but that just about accounts for all the costs. It wasn’t always so. Back in 1995, Bombay achieved notoriety as the “world’s most expensive” office market. Rents hit £100 per sq ft, space standards were dreadful, and landlords demanded two-year “security deposits”. Delhi wasn’t far behind. Extraordinary maturity rate As the schedule of lettings indicates, India’s office market has matured at an extraordinary rate in the past five years. “Property used to be one of the biggest obstacles to setting up office-based operations in India,” says Geoff Marsh, head of London Residential Research (part of EGi), which has produced a report on India with India Property Research. “Now it is a routine matter to acquire a well-built building with typical leases of nine years with three-year breaks.” Chesterton, Knight Frank, JLL and Richard Ellis are among those agents who have offices in India to assist UK operations. But not everyone has fallen under India’s spell. Michael Allen, managing director of Mitial Research, believes that the biggest threat to UK call centre jobs will come from technology and industry consolidation. “From the property point of view, India’s impact has been blown out of proportion.” To contact India Property Research, call Geoff Marsh on 0207 411 2530 Back office operations that have recently set up in India Company Back office for Space leased (sq ft) City Standard Chartered Bank SCB Asia Pacific 400,000 Chennai HSBC HSBC 100,000 Bangalore World Network Services British Airways 60,000 Pune World Network Services British Airways 55,000 Mumbai ICICI One Source Prudential UK 50,000 Mumbai Churchill Insurance Churchill UK 47,000 Delhi FI Group FI Group 38,000 Pune Source: India Property Research A selection of large office lettings in Gurgaon (2001-02) Occupier Building Sector Space leased (sq ft) Rent (£ per sq ft pa) Sapient Corporation Presidency IT 200,000 3.60 American Express Infocity (Bharti site) Remote processing 200,000 – GE Capital Int Services Built to suit facility Remote processing 200,000 – Convergys DLF Atria Remote processing 160,000 5.00 Nestlé DLF Square MNC 150,000 n/a Ericsson Built to suit facility Telecom 135,000 n/a Qualcomm TCG Ardee IT 100,000 5.30 Source: India Property Research