BPO – Catch 22

I have been talking to various friends and professionals, who either have their own BPOs or are running some. One key challenge that they bring out are challenges with new players, the companies from onshore attempting to squeeze rates etc.

In one particular case one upcoming BPO picked up a large deal at a rate of just $700 per resource per month, which translates to approximately INR 42,000 per month. If you really talk of direct costs at the lowest levels, probably you may get a good resource at about 60-70% of that amount, but then there are infrastructure costs, which will be anywhere between 25-40% on that amount, and will be higher for startups, there will be food and transportation costs, there will be administrative overheads.

And all this is done in the name of cracking a deal.

Even the organizations outsourcing end up by squeezing the rates. I have seen companies crushing the vendors to a rate of about $6 an hour, which will translate to about $1000-1200 per month, which is crazy.

What is really needed is to treat the vendor as a strategic partner. If the company outsourcing work to a back office was to set up their own captive office, then will they create an environment with this level of finances?

As a consequence, the vendor will not add any value to the operations, and will just attempt to execute the work at the lowest possible costs.

Such a vendor can actually add a lot of value by sharing best practices, suggesting improvements etc.

This is the reason why I call this a catch 22 situation, where both principals and vendors look at only short term requirements and totally ignore the long term stuff.

Beware of this if you are outsourcing or are a vendor for outsourcing.