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Forbes Column 08: How to Save the World’s Back Office

Posted on Friday, Mar 14th 2008

Please read my new Forbes column, How to Save the World’s Back Office. In it, I discuss Gram IT, a rural BPO project promoted by Satyam. There is also a video segment that you can watch here.

I would love to see more projects like this come about, get funded, and scaled in the commercial domain in India. I see rural / small town BPO as a very interesting opportunity for the next phase of India’s evolution as the world’s back-office.

Entrepreneurs in India: TAKE THIS ON.

Here are some back-of-the-envelope numbers:

If you can build a company of 50 rural BPO operations of 100 people each, and charge your clients $2,000 per annum per person, you would have a $10 Million revenue company. Let’s say you pay $1,200 per annum per person in salary. After including infrastructure and cost of sales, you can probably get to $2.5 Million (25%) in operating profit.

You can also get to those numbers by doing the same business in small towns, with say 250 people per operation, and build 20 such operations.

I also believe, that the Sales and Marketing costs can be much lower because you would be marketing to Indian outsourcers, who in turn are marketing to the International companies. These BPO companies are reeling under 20% attrition and 15% salary hike rates. Instead, you will have a stable business of 5% or less attrition and salary hikes. If you can present a reliable option for multi-tiered outsourcing to these companies, they will likely embrace you. And once you have established yourself, proved out your model, they will acquire you for a fat chunk of money.

Your big challenge would be training and infrastructure, but those are manageable challenges in my view.

It looks to me as though India can absorb hundreds of companies that roughly emulate the GramIT model. And it is a perfect double bottomline opportunity as well.

One final point. The Indian Government ought to provide serious funding, subsidies and tax breaks to entrepreneurs who venture into this world. In fact, I would argue, these are the entrepreneurs who should legitimately never be taxed.

This segment is a part in the series : Forbes Column 08


. Connecting With Your Intimate Bot
. The Gap in Google's Defenses
. A Recession-Proof Corner of the Tech Sector
. eBay's Bounce-Back Opportunity
. How To Dig Out Yahoo's Treasures
. The Microsoft-Yahoo! Battle Plan
. What Microsoft Should Do While Yahoo! Dithers
. The Next VMWare
. The Smartest Unknown Indian Entrepreneur
. The Coming Death of Indian Outsourcing
. India - Cash Rich, Product Poor
. How to Save the World's Back Office
. Latin America's eCommerce Leader
. The Next Indo-China War
. The Real VCs of Silicon Valley
. Fund Envy
. Bootstrap Yourself
. The Coming Convergence
. Lighting The Way In India
. Hydro-Alchemy
. How Amazon Could Change Publishing
. A Technological Fix For Education
. How Technology Can Save Retailers
. Mobile Microfinance
. How To Heat Up Solar
. How Chip Toolmakers Can Survive
. Kill The Business Trip
. Water Firm Enlivens IPO Market
. Web-Savvy Authors Reap Fame, Fortune
. Peeking Inside the iPhone
. Bootstrapping, Montana Style
. Entrepreneurs Flock To Online Travel
. Silicon Lazarus
. Carts Ahead Of Horses
. Weapon Of Mass Reconstruction
. Barack Obama' s Finance Lesson
. Stimulus Package For Entrepreneurs
. Building A Smarter Corporation
. Deconstructing The Cloud
. 'SaaS-ing' Back At The Economy
. Web 3.0
. My Adventure With Amazon
. An S.O.S. To Silicon Valley
. OLPC’s Last Billion
. Capitalism Revisited
. Bargains For Private Equity
. President Obama
. Perilous Protectionism
. Healing Health Care
. Stop The Fear Epidemic
. Obama
. 'Edutainment' Needs Entrepreneurs

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Sramana – There is definitely an opportunity there. It will be interesting to see how this develops. Maybe you can comment on why Indians in 3rd or 4th tier cities would work for $1200 when they could move to a Tier 2 city and make many times that. Is the family culture that conservative? Is the culture changing such that staying close to home is becoming more rare? Could we be looking at the same changes as the USA, where citizens of rural areas moved into suburban areas ringing urban commercial centers?

Tony Friday, March 14, 2008 at 5:49 PM PT

Good question, Tony. There are several answers.

It is not a question of the family culture being so “conservative”, but rather that people really enjoy their immediate and extended family. Children are raised by grandparents, uncles, aunts, cousins around. This is the way I grew up, and frankly, the other model that the US has, cannot even compare to how much nicer it is for families to have that support network.

The second answer is that cost of living also rises substantially as you move to the larger cities. So, in the end, the quality of life / lifestyle you can afford will net out to be the same, so what are you sacrificing your wonderful family for?

Sramana Mitra Friday, March 14, 2008 at 6:13 PM PT

Sranamamitra talks about Sathyam’s GramIT rural BPO project in a recent Forbes article and adds in her blog,

I would love to see more projects like this come about, get funded, and scaled in the commercial domain in India. I see rural / small town BPO as a very interesting opportunity for the next phase of India’s evolution as the world’s back-office

While undoubtedly true, her assertion does a mild disservice to a slew of entrepreneurs, who have already begun doing this, not just in BPO/KPOs but for tech software as well.

Read the rest at http://designofbusiness.blogspot.com/2008/03/retention-culture-and-building-products.html
[sorry still trying to figure out the trackback thing on Blogger]

K. Srikrishna Saturday, March 15, 2008 at 2:22 AM PT