After business process outsourcing, it is human resource outsourcing that is being seen as the next challenging and emerging opportunity for Indian companies. But is India ready to take on this next big wave? Analysts think not, at least not yet.
According to Nasscom estimates, the human resource outsourcing opportunity for India is around $3.5-5 billion by 2008? Would you agree with that?
Yes. It's a reasonable, conservative and achievable estimate. The total market by that point of time would be around $60 billion and we are actually talking about 7-8 per cent market share, which I think can definitely be achieved.
Would you say that the global market is more than $50 billion?
The global market would be around $50 billion. And what we are looking at roughly is 10 per cent.
Several analysts believe that India is still not capable enough to handle the whole range of HR services. What is your take on that?
The business is highly complex. It has security, legal and compliance issues. The domain and process expertise is not easily available.
I definitely agree with the view that it is not possible to do end-to-end HRO. End-to-end HRO would mean something like what Exult (a California-based HR firm) is doing --virtually taking over the entire HR functions of an organisation right from recruitment, hiring, payroll and training. You need to develop a technological platform, which could take care of the multiple services. Indian companies do not have that as of date.
Secondly, HR is already outsourced to a great extent in the United States and United Kingdom and you have extremely strong well established companies with experience ranging from 2 to about 50 years.
It is very difficult to persuade a US Fortune company or even a Fortune 1000 company to hire a firm that has no technological experience or platform.
The right strategy is to start working with outsourcing companies which exist there, look at pieces of HR that you could do like data capture, data input, basic HR contact help desk etc. Then you can move up the value chain in a couple of years. Today Indian companies are not in a position to do HRO.
So what are these companies currently doing?
At present most HR shops in India are either captive, which are shared service centres or they are global service providers like EDP and Exult who have set up shop in India. We would be starting a fairly large pilot in this quarter. From a third party perspective, there are limited number of companies in this space.
As far as Patni is concerned, we look at it as a strategic growth area. Today we are in a position to do end-to-end benefits administration.
Time and again, it is being reiterated that the HRO business is very complex. So what should India's strategy be to tap this market?
India's strategy fundamentally should be to start alliance with outsourcing companies. You could do it either as a vendor-client relationship or joint ventures. Over the years, build your domain expertise. If you want to address the end user, which is actually the challenge, you have to build the technological platform. It's a long haul game, a period of 24-36 months.
Why exactly is the business so complicated?
There are regulatory and data security issues. There are laws that protect employee data and you are not allowed to give out information without prior permission and approval.
If you mess up, not only are the penalties extremely severe, but the company (that has hired you) also expects you to indemnify them. Today we don't even understand those indemnities. That's why you should work with outsourcing companies and do part of their business.
How many jobs will HRO create in India?
This will have to be an educated guess. Nasscom numbers are a million software jobs by 2005, HRO would be about a 25 per cent of that.
What kind of companies should Indian organisations look at?
In the US perspective, end user is definitely a serious challenge. In the UK there might be some possibility because the British market is yet to mature from an outsourcing perspective. That market would be relatively easy to address if you have everything in place - process, domain, technology platform and software.
That is why I have said this is a huge business.... a great business, but it's not for everyone. You have to understand it's a long haul game and you have to do upfront investment before you see business coming in.
Doesn't HRO happen a lot within India?
Yes. Within India, the trend has started. Hewitt is doing a lot of work. Pay roll processing is happening in India. It has definitely started, but I still think most Indian companies are doing it in-house.
Would they be the future HRO players in the international scenario?
Hewitt is a big player internationally too.
But what about the smaller companies?
The problem with small companies is the ability to invest, not only in the so-called ecosystem, but also selling skills. You need to put in a lot of money and wait for a while before money comes in. I don't see small companies surviving for too long.
What are Patni's pilot projects?
I'm doing one on credit card processing and there's one on technical support.
What is the size of the market currently?
I would estimate the market to be around $50-100 million. I don't think there would be more than 4-5 players. It's a very complex business and I don't think many companies would like to even attempt it.
Who do you see as your competitors?
At this point, I think the IT companies would be the competitors. Patni does a lot of work in the application area of HR, so does Progeon and Satyam. IT companies already have the domain knowledge and the expertise. I would think the top few IT companies are our competitors.