Proposal for Setting up a BPO unit In Tribal Taluka of Chhota Udepur of District Vadodara For Doubling of the Income

of the people of the Area In 11th Five year plan

Submitted to: Government of Gujarat, Social Justice & Empowerment Department (Tribal Development Department) Gandhinagar.

December 2006

Submitted by: Shroffs Foundation Trust At & Post: Kalali, Tal. & Dist. Vadodara Ph. 0265 - 2680061, 2680702 Fax-0265 - 2680370 sft@shroffsfoundation.org

Contents 1. Introduction 2. Executive Summary 3. Overview of Outsourcing Industry 4. BPO in Chhota Udepur 5. Pre-requisites 6. Project Plan 7. Resource Requirements 8. Financial Plan 9. Financial Feasibility 10. Conclusion 3 4 6 11 12 14 15 16 18 20

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1. Introduction This proposal t o set -up a BPO unit in Chhot a Udepur is envisaged as part of t he income generat ion program (doubling t he income of t he area) undert aken by SFT with private sector partnerships.

The obj ect ive of t his proposal is t o build capacit y among rural (t ribal) yout h t o become BPO agent s and get employment in t he BPO sect or which will primarily be in the rural location.

The execut ive summary is given next which is followed by det ailed descript ion of the project including implementation plan and financials.

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2. Executive Summary

This proposal is being made to set-up a BPO (Business Process Outsourcing) unit in Chhot a Udepur. Considering t hat t he prime driver for basic BPO services is cost advant age, envisaging a model where rural infrast ruct ure is used and process agent s are also drawn from rural yout h is one of t he most appropriat e ways of present ing such a low cost advant age t o t he cust omers who are wiling to outsource their processes.

Though a rural model for BPO services may look like a non-feasible opt ion as against a t ypical urban/ cit y BPO set -up, a number of at t empt s have been made t o set up BPOs in rural areas and most of t hese at t empt s have been successful. In India, many BPO unit s have been set up in rural areas surrounding Chennai & Pondicherry and some cust omers out sourcing services are, in fact , t hriving on such rural model.

A typical BPO unit set-up requires following:

1. Room/office etc. 2. Computer and Server set-up including various software. 3. Broadband Connectivity, preferably a leased line. 4. At least one IT technician/engineer for each shift. 5. At least one person with managerial skills (Team Leader) for each shift. 6. Educated workforce young people ready to work in shifts. 7. In most cases, English language skills, at least good reading and writ ing skills in English language.

Considering Chhot a Udepur, some of t he above facilit ies are already available and ot hers can be made available. The most import ant aspect s t o develop would be t he connect ivit y and local manpower capabilit ies. Though

connect ivit y can be est ablished wit h t he help of t elecom service providers in

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short t ime, t he capacit y building of t he manpower is a development process and would t ake some t ime. Considering t hat language skills are also t o be developed, a reasonable estimate of 9 months to 12 months should be taken for development of manpower t o be ready t o work as process agent s in t he BPO unit. There are some good reasons for cust omers t o have rural BPOs at t ract ive from a business st andpoint . The main driver is cost as t he infrast ruct ure cost (physical space rent al, lease or purchase) and people cost (t he highest cost in a BPO) are much lower in rural areas compared t o urban sit uat ion. Also, wit h t he growt h of urban areas, t he cost of running BPO in a cit y is increasing and t he cost leverage t hat was t here five years back has considerably reduced. Moreover, the pressures on city infrastructures are creating major roadblocks in expanding t he set-up in cit ies. For example, severe t raffic j ams have become a norm in Bangalore, the biggest BPO hub in India. As we look forward, it is envisaged t hat rural areas are going t o become focus of low-end BPO services and t he urban BPO services will t end t o move up t he value chain and over a period of t ime urban areas will become t he focus of high-end BPO services, Outsourcing). Considering t he above, it is proposed t o set -up a BPO unit in Chhot a Udepur on t he basis of a properly designed Proj ect Implement at ion Plan. This would also provide an early mover advant age as well as form a basis for replicat ion of t he model into the same and other rural locations. As a public-privat e part nership model, Transpek Indust ry Limit ed, Vadodara was approached and t hey have agreed in principle t o t ake over t his unit direct ly or t hrough any of t heir associat e/group company aft er 12 mont hs and run it as a business unit wherein t he t ribal yout h will cont inue t o be employed and earn income. generally t ermed as KPO (Knowledge Process

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3. Overview of Outsourcing Industry Introduction

This chapt er provides a general overview of t he Out sourcing Indust ry wit h part icular emphasis on Business Process Out sourcing (BPO). It analyses t he configurat ion of t he BPO indust ry in general, t he nat ional compet it iveness and the business drivers for successful BPO.

Concepts of BPO and KPO

Defined simply, BPO is t he preparat ion, capt ure, warehouse, ret rieval and ut ilizat ion of informat ion for an organizat ion. Dat a processing is accompanied by ext ract ing informat ion from a current or cust om designed form, fax, cat alogue, book, elect ronic media or an on-line ent ry syst em, while simult aneously offering an int ernet -based dat a ent ry and query service. This service bureau concept alleviat es t he need for onsit e dat a ent ry personnel, Opt ical Charact er Recognit ion (OCR) soft ware and hardware while ensuring t he utmost integrity, accuracy and security.

Knowledge Process Out sourcing (KPO) is t he high-end services in out sourcing and it concerns t he applicat ion of knowledge t o business processes compared to low level skills in bottom-line BPO.

The lit erat ure is very rich in explaining t he concept s of out sourcing and t wo such concepts have been identified to explain the scope of the industry. The BPO actors: Saunders et al. (1997) recognize that outsourcing has two main act ors: t he out sourced and t he out sourcer . The first is t he cust omer or client who out sources his processes while t he second, t he ent erprise or commonly called t he vendor, delivers out sourced services. The process owner

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is t he organizat ional int erface of t he t wo ent erprises during all t he out sourcing activities. The BPO mechanism: Financial Times (2004) explains t he mechanism of BPO whereby a BPO provider assumes primary responsibilit y for delivery,

maintaining and developing a business process or set s of funct ions. Cont ract s are usually long-t erm and, in some cases, st aff responsible for t he out sourced function move across the customer to the provider. The t wo above concept s give a micro-economic dimension t o BPO as a management st rat egy. When we look at t he bigger pict ure and consider t he macro framework, we should include a t hird act or: t he Government or t he count ry in which t he service is being delivered. We can t herefore emphasize from t he very out set t hat BPO as an indust ry has t hree main act ors: t he client who requires t he service, t he vendor who provides it and t he count ry which is the location from which the service is provided. Outsourcing: The Status & Potential

From a general point of view, Vent oro (2004) report s t hat t he out sourcing industry in general has the following configuration as at date:

There are some 10,000 vendors offering some form of outsourcing There are offshore outsourcing vendors in over 175 countries There are some 500 Government Agencies, Trade Groups and NGOs act ively campaigning to grab a larger share of the global outsourcing market

Considering BPO on it s own as an indust ry, Forrest er (2004) said t hat while it believes the BPO market will grow to $146 billion in 2008, the market place will fragment as vendors focus on individual BPO segment s like simple bulk t ransact ions, broad shared services, high-volume vert ical processes and niche vertical applications. A further analysis made by Forrester reveals that:

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The largest segment in t he BPO market will be simple bulk t ransact ions and they predict that this segment will grow to $58 billion by 2008, The second largest segment will be broad shared services, represent ing a market of $57 billion in 2008 High-volume vert ical processes will represent a significant ly smaller segment , i.e. $ 6 billion in 2008. Vert ical processes include policy administ rat ion, claims and loan process applications etc. The Times (August 2003) report s t hat by t aking advant age of lower wages overseas, U.S. Managers can cut overall cost s by 25 t o 40% while building a more secure and more focused workforce in the U.S.

Market & Business Development (MBD) (2004) published a report on Business Comput ing in t he UK in Sept ember 2004 in which it highlight s t hat t he sharp growt h in t he value of IT Professional Services largely reflect s t he increased t rend t owards BPO. The report also st at es t hat BPO which has increased it s share of t he t ot al market for t he aforesaid services from 36% in 2000 t o a project ed 42% in 2004 is believed t o be t he fast est growing area in t he sect or, particularly third party work.

The above st at ist ics no doubt confirm t he growt h of BPO as an Indust ry wit h a worldwide dimension

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The Geographical Distribution of the Outsourcing Industry

Out sourcing can be segregat ed int o t wo t ypical market s: t he developed vendor market s and t he emerging vendor market . A short review of count ry locat ions and their specializations is opportune.

The developed vendor market

Rick L. Click et al. (2004) highlight five BPO int ernat ional spot s which have emerged around the globe, each with a field of specializations. Viz

India China Mexico -

Financial, Healthcare, Engineering & Technical Manufacturing and Technical Manufacturing Analysis and Creative Administrative

Unites States Philippines

St rat egic Direct ion (2004) argues t hat India could well be t he first developing count ry t hat has used it s brain power, rat her t han it s muscles of fact ory labor t o cat apult it self int o a fast -growing economy. It is not surprising t hat India is now recognized as t he world BPO leader. The Economist (May 2004) report s t hat India s revenue from BPO grew by some 50% in 2003 t o reach $ 3.6 billion, a feat it should repeat regularly. Mr. Rao, t he Chairman of NASSCOM, t he Indian BPO-Indust ry lobby Associat ion, indicat es t hat some 85% of it s member s revenues are derived from America and Britain.

A typical BPO Services model is depicted in the following diagram.

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Typical BPO Services

Client Interactive Services Back-Office Transactions Information Technologies & Software Financial & Accounting Services Human Resource Services Knowledge Management Services

Call Center Marketing Services Telesales Order Processing Client Support Warranties Administration Client Feedback

Checks & Credit Card Processing Debtors Recovery Supplies processing Transportation Distribution Logistics Warehouse Management

Needs Management Applications Development Applications Testing Software development

Invoicing Services Accounts Payable Accounts Receivable General Accounting Internal Audit

Payroll Services

Data Management Centre Data mining Data Warehousing

Health care Services Recruitment Training Management Pension Fund

Knowledge Databank

Implementation Services

IT Help Desk

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4. BPO in Chhota Udepur

The cit y of Chhot a Udepur is a dist rict cent er wit h reasonably good infrast ruct ure and availabilit y of young manpower. It is also well connect ed by road with Vadodara.

A BPO can be set up in Chhota Udepur with a view to build a profitable business model for privat e sect or and at t he same t ime harnessing t he yout h populat ion available. This is a win-win situation for the community and private sector. The privat e sect or will get low cost skilled manpower and communit y will benefit by availability of employment opportunities.

A t ypical BPO which provide basic dat a processing services is envisaged as a st art ing point . Such a process is t ypically at t he bot t om level of BPO services and requires agent s t hat are school educat ed (HSC preferred, but SSC pass can also do).

Generally, in BPO business, a cust omer likes t o st art at t he lowest end of t he services and would like t o move t o higher levels only when t he cust omer expect at ions about qualit y and efficiencies are met . Once a confidence level is established, the customer would be willing to pass on higher end services which provide better revenues.

The key for winning cust omers in BPO is t o act ually demonst rat e t he capabilit ies of BPO and t herefore t raining and pilot t est s are crit ical fact ors for building such capabilities. The next chapt er provides det ails about pre-requisit es t hat are needed t o develop and demonstrate such capabilities.

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5. Pre-requisites

A BPO is a set -up around Informat ion Technology and Manpower. Therefore, the pre-requisites for BPO business are different from typical land, building and machinery required for a traditional industry.

The following are the pre-requisites for setting up a BPO business unit.

Room/office etc. A proper area like an office (not necessarily air-condit ioned) which has basic set -up like workst at ions (t ables-chairs et c.) and elect ric connect ions wit h proper light ing. A rough est imat e for space needed is t o have average 45 sq. ft. per employee.

Computer and Server set-up including various software. These are key equipment and would need t o be set -up as per specificat ions of t he cust omer. This would include deskt ops, servers, rout ers, swit ches, racks, dat a st orage and firewalls. The soft ware would include operat ing syst ems, process soft ware and dat abase syst ems. The server will need t o be kept in an air-conditioned and secure server room.

Broadband Connectivity, preferably a leased line. It is imperat ive t o have cont inuous connect ivit y t oget her wit h a back-up in case t he main like goes down. Generally, a leased line is t he main set -up and back is provided with Broadband.

Electricity It is necessary t o have cont inuous availabilit y of power t o run t he business. Therefore, as a back-up a generator is must.

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At least one IT technician/engineer for each shift Since t he set -up would be fully based on IT syst ems, it is crit ical t o have availabilit y of IT engineer full t ime so as t o reduce down t ime as much as possible and also to maintain the set-up in proper condition.

At least one person wit h managerial skills (Senior Team Leader) for each shift. The key t o success lies in managing t he t eams of people which will have issues of working at odd hours, pressures of performance and monot ony of t he work being done. Therefore, a senior person wit h leadership and managerial capabilities is needed to manage the business.

Educated workforce young people ready to work in shifts. Wit hout educat ed workforce (higher secondary school, at least ), no process can be carried out . Therefore, availabilit y of such manpower and t heir willing ness t o work in such an indust ry are crit ical. Also, t he success of business is dependent on t he t raining and t herefore people wit h basic education are required so that they can be properly trained.

In most cases, English language skills, at least good reading and writ ing skills in English language. Most of t he out sourcing comes from US & UK and t herefore t he language of process is English. It may be necessary t o t rain t he employees in t he language before t hey go for t raining in t he comput ers or t he out sourced process itself.

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6. Project Plan

The proj ect is planned t o be implement ed over a period of 9 t o 12 mont hs out of which about 90% of the time will be spent in training and pilot tests.

The project plan can be depicted in the following diagram:

Project Implementation Road Map

Availability of Funds Project Planning Business Development Tie-up Corporate in-principle to take over the unit. Infrastructure set-up including connectivity.

Month 1/2

Month 2/3

Month 3/4

Month 4/5

Month Month 5/6/7/8 Month 8/9/10 11/12

Kick-off Recruitment Training

Training in Computers Training in Language

Pilots 1/2/3

Go Live

Training in dummy processes.

Current ly, for t he period of Training et c., t he proj ect will be implement ed by Shroffs Foundat ion Trust . Once t he t raining is over and capabilit ies are built , t he unit will be t ransferred t o Transpek Indust ry Limit ed or any of it s associat e companies for running it as a business. Transpek has provided a Letter of Intent to this effect which is attached herewith.

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7. Resource Requirements Basic Assumptions 1. The Unit would be of 100 seat s excluding the Team Leaders and Qualit y Assurance staff. The unit will run on two shift basis. 2. A building is available on rent and is not to be bought or constructed.

Resources Required A building of about 7,000 t o 9,000 sq. ft . will be required considering an average space requirement of about 70 t o 90 sq. ft . per person. 104 Desktops, 5 Servers. Routers, switches, firewall etc. and network cabling. Appropriat e soft ware Database Application etc. Workstations 105 nos. Air Conditioned Server Room Electrification Software for Learning English Language. Operat ing Syst ems, Sever Applicat ion,

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8. Financial Planning A: Capital Expenditure Sr. 1 2 3 4 5 6 7 8 9 10 11 12 Particulars Building Refurbishment (assumed can be finalized after the building is identified). Workstations 105 @ Rs. 7,000 per station Desktops 104 @ 23000 per desktop Servers 3 @ 1,20,000 per server Server Room with AC including Racks Switches 6 @ 25,000 Firewall 1 @ 180000 Router 1 @ Rs. 125,000 Voice Equipments Network Cabling Software Server, CALs, Dat abase, Operat ing Syst em + MS Office Electricity Generator Total Investment Amount Rs. 7,00,000 7,35,000 23,92,000 3,60,000 3,00,000 1,50,000 1,80,000 1,25,000 4,00,000 2,50,000 9,50,000 10,00,000 75,42,000

B: Annual Recurring Expenses for IT/Internet Set up Sr. 1 2 3 4 Particulars BSNL Internet Connection Port Charges 2 MBPS BSNL Local Lead Annual Maintenance Software Licenses Total IT Recurring Amount Rs. 8,00,000 1,00,000 5,00,000 5,00,000 19,00,000

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C: Operating & Training Expenses for 12 months Sr. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Particulars Training Material & Assignments for 200 trainees English Language Teachers 8 @ Rs. 12,500 per month Computer Proficiency Teacher 8 @ Rs. 10,000 per month It Technicians 2 (1 for each shift) @ Rs. 10,000 each. Team Leader 2 (1 for each shift) @ Rs. 10,000 each. Quality Assurance Staff (2 for each shift) @ Rs. 8,000 each Online Testing Electricity Telecommunication (except Internet) Provision of Tea, Coffee etc. Trainee Stipend @ 1500 per month Traveling etc. Other expenses Contingencies @ 10% of total exp. Total Expenses Amount Rs. 6,00,000 12,00,000 9,60,000 2,40,000 2,40,000 3,84,000 8,00,000 10,00,000 1,20,000 2,00,000 36,00,000 1,00,000 2,00,000 9,64,400 1,06,08,400

D: Total Project Expenses A: Capital Expenditure Rs. 75,42,000 B: IT/Internet Expenses Rs. 19,00,000 C: Training & Operating Expense Rs. Rs. 1,06,08,400 D: Management Fees for Project Rs. 20,00,000 Total Cost Rs. 2,20,50,400

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9. Financial Feasibility Once t he proj ect is implement ed and capabilit ies are built , t he unit would be handed over t o t he privat e part ner. The financial feasibilit y for such a unit is shown as under: A: Annual Operating Expenses (two shifts) Sr. 1 2 3 4 5 6 7 8 9 10 11 12 13 Particulars Continuing Training Material etc. English Language Teachers 1 @ Rs. 12,500 per month Computer Proficiency Teacher 1 @ Rs. 10,000 per month Online Testing Electricity Telecommunication (except Internet) Provision of Tea, Coffee etc. Agent Salary @ 3000 per mont h all inclusive for 180 agents Team Leader & Qualit y St aff Salary @ 4000 per month for 20 nos. Manager s Salary 2 @ 30,000 per month. Traveling etc. Other expenses Contingencies @ 5% of total exp. Total Expenses Amount Rs. 3,00,000 1,50,000 1,20,000 2,00,000 10,00,000 6,00,000 2,00,000 64,80,000 9,60,000 7,20,000 2,00,000 5,00,000 5,71,550 1,20,01,500

B: IT & Internet Cost Sr. 1 2 3 4 Particulars BSNL Internet Connection Port Charges 2 MBPS BSNL Local Lead Annual Maintenance Software Licenses Total IT Recurring Amount Rs. 8,00,000 1,00,000 5,00,000 5,00,000 19,00,000

Total Expenses Rs. 1,39,01,500 Annual Depreciation Rs. 25,14,000 Total Costs Rs. 1,64,15,500

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Financial Feasibility Calculation Sr. 1 2 3 4 5 6 7 8 9 10 Particulars Total Annual Costs Total Working days No. of hours per day per shift No. of man-hours for 180 agents Hourly Revenue Required per agent for Break-even. Daily Revenue for Break-even per agent Average no. of Dat a Unit s Processed daily per agent for a basic process Revenue per Data Unit Revenue per day per agent Net Surplus per agent per day Rs. 1,64,15,500 300 8 4,32,000 Rs. 38 Rs. 304 300 Rs. 1.20 Rs. 360 Rs. 56

Thus, t he proj ect is viable f or even wit h a base level process. As t he capabilities of agents are built, the unit can take up higher level processes that would generate much higher per Data Unit revenue.

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10. Conclusion Considering t hat t he proj ect has all t he ingredient s for success and well as inherent possibilit y for replicat ion in ot her similar areas, it is recommended t o approve the project.

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