India's Phone Centers Take Calls From Home

In Shift, Outsourcers Tap Domestic Market as U.S. Demand Ebbs

HUBLI, India -- With the U.S. in recession, India's call centers have opened a new outsourcing frontier: India.

The shift is a sign of how India's flagship export industry is shifting from providing services to the developed world to catering to its own, quickly growing market. The Indian economy grew 6.7% for the fiscal year ended March 31.

While outsourcing revenue from within India is still a tiny fraction of the global market -- $12 billion in 2008 out of $500 billion spent world-wide -- it is expected to hit $95 billion by 2020, or nearly 15% of the expected global market, according to a recent McKinsey & Co. report. The overall global market for business process outsourcing will reach $640 billion in the same time, the report says.

Indian outsourcers capture contracts from U.S. clients largely by touting India's low wages and big cost savings. But at home, providing those lower costs means setting up offices in rural areas, where wages and property costs are lower than in its bigger cities.

"We cannot deliver and make money in the same way we make money for an international market," says Ananda Mukerji, chief executive of Firstsource Solutions Ltd., a Mumbai-based outsourcer.

In April 2007, his company opened a call center in Hubli, a city of 800,000 people 370 kilometers northwest of Bangalore, India's outsourcing capital. Hubli is best known for its cotton and peanut farms.

But it is also a place where wages and rents are half of those in major cities such as Mumbai. A call center worker who gets roughly $500 a month in Mumbai would earn $250 to $300 a month in Hubli.

Firstsource now has 450 workers in Hubli, where it is the largest private employer. It is one of the company's 15 outsourcing centers for the domestic market. During the past two years Firstsource has seen the India share of its annual revenue, which stood at $370 million in the year ended March 31, jump to 13% from 1%.

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