Galloping wage inflation in India is driving companies to cheaper global destinations The wheel has come a full circle for the Indian business process outsourcing (BPO) sector with runaway wage inflation driving the who’s who in the domestic BPO world to look for low cost destinations such as the Philippines to scale up operations. Leading the pack is the Infosys BPO, which has already set up shop in the Philippines in association with a local partner.

The company is said to be planning to ramp up its presence there through an acquisition or floating a new facility. Other BPO players such as HTMT, IBM Daksh and GenPact are also ramping up their Philippines operations, industry watchers say. Company officials, when contacted, refused to comment.

Ironically, India scripted its much acclaimed and much lampooned (in the West) BPO success story on the back of its low wage cost advantage. Investments, advisory and management firm Tholons’ Principal Vinu B Kartha told FE that the challenges of scaling up in India are getting tougher each day. “The challenge is real. For a tier-II player who needs to grow to graduate to tier-I, Philippines are an extremely attractive base to expand into.

In 2007, we expect four to five deals involving large Indian players who are moving to that country,” he said, adding, “most of the investments there would be towards setting up support operations for primary facilities based in India.” Many BPOs are eyeing tier-II locations outside Manila and Makati in the Philippines to set up disaster recovery centres for Indian facilities, sources said. While initial establishment costs for launching BPO operations there were comparable to those in India, scaling up in that country proves easier unlike in the crowded and costly Indian cities. The Philippines is already known as a major global BPO hub.

“In the off-shoring space, companies are now comparing tier -II locations within India to those even in China, Thailand, Vietnam, Malaysia and the like, that offer similar price advantages and support expansion needs,” said senior director of consulting company neoIT, Sabyasachi Satyaprasad. Industry watchers, however, caution that this should not be seen as the end of India’s BPO dream run.