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Home > India > Business > Business Headline > Report

BPOs grapple with inflation

June 25, 2008 03:01 IST

IT-BPO firms, which are already facing a US slowdown and currency fluctuations, are now busy in firming up their plans to tackle a rising inflation in the country and its impact on salary, sales, general and administrative (SG&A) and travel costs, which can dent their profit margins.


According to analysts, the immediate impact of a rising inflation would be on salary. Avinash Vashishta, Tholons Investment Advisory Research, said: "Salaries will now have to be hiked by more than what the companies had decided. Last year, there was almost a 15 per cent rise in salary, while this year it may go up by 8-9 per cent."


Most companies, including India's largest IT services provider Tata Consultancy Services [Get Quote] (TCS), Infosys [Get Quote] and Satyam [Get Quote], implemented their annual wage hike in the first quarter of the financial year beginning April 1. Others such as Wipro [Get Quote] do it during the year. If inflation continues throughout the year the firms would have to effect a mid-term hike or raise the salary by a good measure in the next financial year.


Ganesh Natarajan, MD, Zensar, said: "Inflation will not have any impact on a short-term basis. But in the long-run, we will have to restructure our business plans. We need to recalculate cost of operations, salaries and investments happening if inflation sustains over a long period."


Zensar plans to waive the subsidy offered to its employees on transportation cost.


Next in line comes transport costs as many transport associations are planning to increase their rates. The Maharashtra Call Centre Drivers' and Owners' Association (MCCDOA) has asked for an increase in remuneration. "All BPO units pay us Rs 6 per kilometre. Considering the increase in petrol and diesel prices, we now want the charges hiked to Rs 10 per kilometre," said Nana Kshirsagar, president, MCCDOA.


Som Mittal, president, Nasscom, said: "The phenomenon of price rise started last year with the appreciation of the rupee and since then, the industry has taken measures to tackle the problem. There will be no impact on the demand side but there is a concern on the transportation and fuel prices and we are working with state governments."


It offers a 50 per cent subsidy to its employees who use the company transport to reach the office. "We have to take concrete steps to manage the transportation costs. Since we do not want the employees to feel the heat, we have withdrawn the subsidy," said Ajit Sane, Admin Head, Zensar Technologies.


WNS Holdings, the second largest BPO in India, has taken up several initiatives to cut cost.

Neeraj Bhargava, group CEO, WNS Global Services, said: "Cost optimisation in the BPO industry is an ongoing exercise. We are constantly looking at short- and long-term solutions to managing costs."


About transport and power, which account for 7-8 per cent of the company's  operating costs in India, the company has taken some measures as part of its overall cost rationalisation plan.


"In the short-term, for transportation, we are encouraging employees to use more buses rather than cabs through a hub and spoke model, encouraging our transport providers to use CNG vehicles, among others," adds Bhargava.


Mumbai-based Syntel, for instance, is focusing on waste elimination by controlling unnecessary travels, higher levels of video conferencing along with innovative use of technology assets in company.


"Inflation definitely does have an impact. We expect the inflationary trends to be a short term phenomena and not a long time structural change and as such should not impact either salary levels or the hiring cycle in the higher end transaction processing business," said out Keshav Murugesh, president and COO, Syntel.

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