Shroff Foundation Trust - Vanbandhu Kalyan Yojana - Government ...

Proposal for Setting up a BPO unit
In
Tribal Taluka of Chhota Udepur of District Vadodara
For
Doubling of the Income of the people of the Area
In 11 th Five year plan
Submitted to:
Government of Gujarat,
Social Justice & Empowerment Department
(Tribal Development Department)
Gandhinagar.
December 2006
Submitted by:
Shroffs Foundation Trust
At & Post: Kalali, Tal. & Dist. Vadodara
Ph. 0265 - 2680061, 2680702
Fax-0265 - 2680370
sft@shroffsfoundation.org

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Contents
1. Introduction 3
2. Executive Summary 4
3. Overview of Outsourcing Industry 6
4. BPO in Chhota Udepur 11
5. Pre-requisites 12
6. Project Plan 14
7. Resource Requirements 15
8. Financial Plan 16
9. Financial Feasibility 18
10. Conclusion 20

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1. Introduction
This proposal to set-up a BPO unit in Chhota Udepur is envisaged as part of the
income generation program (doubling the income of the area) undertaken by
SFT with private sector partnerships.
The obj ective of this proposal is to build capacity among rural (tribal) youth to
become BPO agents and get employment in the BPO sector which will primarily
be in the rural location.
The executive summary is given next which is followed by detailed description
of the project including implementation plan and financials.

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2. Executive Summary
This proposal is being made to set-up a BPO (Business Process Outsourcing) unit
in Chhota Udepur. Considering that the prime driver for basic BPO services is
cost advantage, envisaging a model where rural infrastructure is used and
process agents are also drawn from rural youth is one of the most appropriate
ways of presenting such a low cost advantage to the customers who are wiling
to outsource their processes.
Though a rural model for BPO services may look like a non-feasible option as
against a typical urban/ city BPO set-up, a number of attempts have been made
to set up BPOs in rural areas and most of these attempts have been successful.
In India, many BPO units have been set up in rural areas surrounding Chennai &
Pondicherry and some customers outsourcing services are, in fact, thriving on
such rural model.
A typical BPO unit set-up requires following:
1. Room/office etc.
2. Computer and Server set-up including various software.
3. Broadband Connectivity, preferably a leased line.
4. At least one IT technician/engineer for each shift.
5. At least one person with managerial skills (Team Leader) for each shift.
6. Educated workforce young people ready to work in shifts.
7. In most cases, English language skills, at least good reading and writing
skills in English language.
Considering Chhota Udepur, some of the above facilities are already available
and others can be made available. The most important aspects to develop
would be the connectivity and local manpower capabilities. Though
connectivity can be established with the help of telecom service providers in

short time, the capacity building of the manpower is a development process
and would take some time. Considering that language skills are also to be
developed, a reasonable estimate of 9 months to 12 months should be taken for
development of manpower to be ready to work as process agents in the BPO
unit.
There are some good reasons for customers to have rural BPOs attractive from
a business standpoint. The main driver is cost as the infrastructure cost
(physical space
rental, lease or purchase) and people cost (the highest cost in
a BPO) are much lower in rural areas compared to urban situation. Also, with
the growth of urban areas, the cost of running BPO in a city is increasing and
the cost leverage that was there five years back has considerably reduced.
Moreover, the pressures on city infrastructures are creating major roadblocks in
expanding the set-up in cities. For example, severe traffic j ams have become a
norm in Bangalore, the biggest BPO hub in India.
As we look forward, it is envisaged that rural areas are going to become focus
of low-end BPO services and the urban BPO services will tend to move up the
value chain and over a period of time urban areas will become the focus of
high-end BPO services, generally termed as KPO (Knowledge Process
Outsourcing).
Considering the above, it is proposed to set-up a BPO unit in Chhota Udepur on
the basis of a properly designed Proj ect Implementation Plan. This would also
provide an early mover advantage as well as form a basis for replication of the
model into the same and other rural locations.
As a public-private partnership model, Transpek Industry Limited, Vadodara
was approached and they have agreed in principle to take over this unit
directly or through any of their associate/group company after 12 months and
run it as a business unit wherein the tribal youth will continue to be employed
and earn income.
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Introduction
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3. Overview of Outsourcing Industry
This chapter provides a general overview of the Outsourcing Industry with
particular emphasis on Business Process Outsourcing (BPO). It analyses the
configuration of the BPO industry in general, the national competitiveness and
the business drivers for successful BPO.
Concepts of BPO and KPO
Defined simply, BPO is the preparation, capture, warehouse, retrieval and
utilization of information for an organization. Data processing is accompanied
by extracting information from a current or custom designed form, fax,
catalogue, book, electronic media or an on-line entry system, while
simultaneously offering an internet-based data entry and query service. This
service bureau concept alleviates the need for onsite data entry personnel,
Optical Character Recognition (OCR) software and hardware while ensuring the
utmost integrity, accuracy and security.
Knowledge Process Outsourcing (KPO) is the high-end services in outsourcing
and it concerns the application of knowledge to business processes compared
to low level skills in bottom-line BPO.
The literature is very rich in explaining the concepts of outsourcing and two
such concepts have been identified to explain the scope of the industry.
The BPO actors: Saunders et al. (1997) recognize that outsourcing has two main
actors: the outsourced and the outsourcer . The first is the customer or
client who outsources his processes while the second, the enterprise or
commonly called the vendor, delivers outsourced services. The process owner

is the organizational interface of the two enterprises during all the outsourcing
activities.
The BPO mechanism: Financial Times (2004) explains the mechanism of BPO
whereby a BPO provider assumes primary responsibility for delivery,
maintaining and developing a business process or sets of functions. Contracts
are usually long-term and, in some cases, staff responsible for the outsourced
function move across the customer to the provider.
The two above concepts give a micro-economic dimension to BPO as a
management strategy. When we look at the bigger picture and consider the
macro framework, we should include a third actor: the Government or the
country in which the service is being delivered. We can therefore emphasize
from the very outset that BPO as an industry has three main actors: the client
who requires the service, the vendor who provides it and the country which is
the location from which the service is provided.
Outsourcing: The Status & Potential
From a general point of view, Ventoro (2004) reports that the outsourcing
industry in general has the following configuration as at date:
There are some 10,000 vendors offering some form of outsourcing
There are offshore outsourcing vendors in over 175 countries
There are some 500 Government Agencies, Trade Groups and NGOs actively
campaigning to grab a larger share of the global outsourcing market
Considering BPO on its own as an industry, Forrester (2004) said that while it
believes the BPO market will grow to $146 billion in 2008, the market place will
fragment as vendors focus on individual BPO segments like simple bulk
transactions, broad shared services, high-volume vertical processes and niche
vertical applications. A further analysis made by Forrester reveals that:
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The largest segment in the BPO market will be simple bulk transactions and
they predict that this segment will grow to $58 billion by 2008,
The second largest segment will be broad shared services, representing a
market of $57 billion in 2008
High-volume vertical processes will represent a significantly smaller segment,
i.e. $ 6 billion in 2008. Vertical processes include policy administration, claims
and loan process applications etc.
The Times (August 2003) reports that by taking advantage of lower wages
overseas, U.S. Managers can cut overall costs by 25 to 40% while building a
more secure and more focused workforce in the U.S.
Market & Business Development (MBD) (2004) published a report on Business
Computing in the UK in September 2004 in which it highlights that the sharp
growth in the value of IT Professional Services largely reflects the increased
trend towards BPO. The report also states that BPO which has increased its
share of the total market for the aforesaid services from 36% in 2000 to a
projected 42% in 2004 is believed to be the fastest growing area in the sector,
particularly third party work.
The above statistics no doubt confirm the growth of BPO as an Industry with a
worldwide dimension
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The Geographical Distribution of the Outsourcing Industry
Outsourcing can be segregated into two typical markets: the developed vendor
markets and the emerging vendor market. A short review of country locations
and their specializations is opportune.
The developed vendor market
Rick L. Click et al. (2004) highlight five BPO international spots which have
emerged around the globe, each with a field of specializations. Viz
India - Financial, Healthcare, Engineering & Technical
China - Manufacturing and Technical
Mexico - - Manufacturing
Unites States - Analysis and Creative
Philippines - Administrative
Strategic Direction (2004) argues that India could well be the first developing
country that has used its brain power, rather than its muscles of factory labor
to catapult itself into a fast-growing economy. It is not surprising that India is
now recognized as the world BPO leader. The Economist (May 2004) reports
that India s revenue from BPO grew by some 50% in 2003 to reach $ 3.6 billion,
a feat it should repeat regularly. Mr. Rao, the Chairman of NASSCOM, the
Indian BPO-Industry lobby Association, indicates that some 85% of its member s
revenues are derived from America and Britain.
A typical BPO Services model is depicted in the following diagram.
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Client
Interactive
Services
Call Center
Marketing
Services
Telesales
Order
Processing
Client Support
Warranties
Administration
Client
Feedback
Back-Office
Transactions
Checks &
Credit Card
Processing
Debtors
Recovery
Supplies
processing
Transportation
Distribution
Logistics
Warehouse
Management
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Typical BPO Services
Information
Technologies &
Software
Needs
Management
Applications
Development
Applications
Testing
Software
development
Implementation
Services
IT Help Desk
Financial &
Accounting
Services
Invoicing
Services
Accounts
Payable
Accounts
Receivable
General
Accounting
Internal
Audit
Human
Resource
Services
Payroll
Services
Health care
Services
Recruitment
Training
Management
Pension Fund
Knowledge
Management
Services
Data
Management
Centre
Data mining
Data
Warehousing
Knowledge
Databank

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4. BPO in Chhota Udepur
The city of Chhota Udepur is a district center with reasonably good
infrastructure and availability of young manpower. It is also well connected by
road with Vadodara.
A BPO can be set up in Chhota Udepur with a view to build a profitable business
model for private sector and at the same time harnessing the youth population
available. This is a win-win situation for the community and private sector. The
private sector will get low cost skilled manpower and community will benefit
by availability of employment opportunities.
A typical BPO which provide basic data processing services is envisaged as a
starting point. Such a process is typically at the bottom level of BPO services
and requires agents that are school educated (HSC preferred, but SSC pass can
also do).
Generally, in BPO business, a customer likes to start at the lowest end of the
services and would like to move to higher levels only when the customer
expectations about quality and efficiencies are met. Once a confidence level is
established, the customer would be willing to pass on higher end services which
provide better revenues.
The key for winning customers in BPO is to actually demonstrate the
capabilities of BPO and therefore training and pilot tests are critical factors for
building such capabilities.
The next chapter provides details about pre-requisites that are needed to
develop and demonstrate such capabilities.

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5. Pre-requisites
A BPO is a set-up around Information Technology and Manpower. Therefore,
the pre-requisites for BPO business are different from typical land, building and
machinery required for a traditional industry.
The following are the pre-requisites for setting up a BPO business unit.
Room/office etc.
A proper area like an office (not necessarily air-conditioned) which has
basic set-up like workstations (tables-chairs etc.) and electric connections
with proper lighting. A rough estimate for space needed is to have average
45 sq. ft. per employee.
Computer and Server set-up including various software.
These are key equipment and would need to be set-up as per specifications
of the customer. This would include desktops, servers, routers, switches,
racks, data storage and firewalls. The software would include operating
systems, process software and database systems. The server will need to be
kept in an air-conditioned and secure server room.
Broadband Connectivity, preferably a leased line.
It is imperative to have continuous connectivity together with a back-up in
case the main like goes down. Generally, a leased line is the main set-up
and back is provided with Broadband.
Electricity
It is necessary to have continuous availability of power to run the business.
Therefore, as a back-up a generator is must.

At least one IT technician/engineer for each shift
Since the set-up would be fully based on IT systems, it is critical to have
availability of IT engineer full time so as to reduce down time as much as
possible and also to maintain the set-up in proper condition.
At least one person with managerial skills (Senior Team Leader) for each
shift.
The key to success lies in managing the teams of people which will have
issues of working at odd hours, pressures of performance and monotony of
the work being done. Therefore, a senior person with leadership and
managerial capabilities is needed to manage the business.
Educated workforce young people ready to work in shifts.
Without educated workforce (higher secondary school, at least), no process
can be carried out. Therefore, availability of such manpower and their
willing ness to work in such an industry are critical. Also, the success of
business is dependent on the training and therefore people with basic
education are required so that they can be properly trained.
In most cases, English language skills, at least good reading and writing
skills in English language.
Most of the outsourcing comes from US & UK and therefore the language of
process is English. It may be necessary to train the employees in the
language before they go for training in the computers or the outsourced
process itself.
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6. Project Plan
The proj ect is planned to be implemented over a period of 9 to 12 months out
of which about 90% of the time will be spent in training and pilot tests.
The project plan can be depicted in the following diagram:
Availability of Funds
Project Planning
Business Development
Month 1/2
Project Implementation Road Map
Tie-up Corporate in-principle to
take over the unit.
Infrastructure set-up including
connectivity.
Month 2/3 Month 3/4
Kick-off
Recruitment
Training
Month 4/5
Month
Month 5/6/7/8
Month 8/9/10
11/12
Training in Computers
Training in Language
Training in dummy processes.
Pilots 1/2/3
Go Live
Currently, for the period of Training etc., the proj ect will be implemented by
Shroffs Foundation Trust. Once the training is over and capabilities are built,
the unit will be transferred to Transpek Industry Limited or any of its associate
companies for running it as a business. Transpek has provided a Letter of Intent
to this effect which is attached herewith.

Basic Assumptions
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7. Resource Requirements
1. The Unit would be of 100 seats excluding the Team Leaders and Quality
Assurance staff. The unit will run on two shift basis.
2. A building is available on rent and is not to be bought or constructed.
Resources Required
A building of about 7,000 to 9,000 sq. ft. will be required
considering an average space requirement of about 70 to 90 sq. ft.
per person.
104 Desktops, 5 Servers.
Routers, switches, firewall etc. and network cabling.
Appropriate software
Database Application etc.
Workstations 105 nos.
Air Conditioned Server Room
Electrification
Software for Learning English Language.
Operating Systems, Sever Application,

Sr.
A: Capital Expenditure
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8. Financial Planning
Particulars Amount Rs.
1 Building Refurbishment (assumed
after the building is identified).
can be finalized 7,00,000
2 Workstations 105 @ Rs. 7,000 per station 7,35,000
3 Desktops 104 @ 23000 per desktop 23,92,000
4 Servers 3 @ 1,20,000 per server 3,60,000
5 Server Room with AC including Racks 3,00,000
6 Switches 6 @ 25,000 1,50,000
7 Firewall 1 @ 180000 1,80,000
8 Router 1 @ Rs. 125,000 1,25,000
9 Voice Equipments 4,00,000
10 Network Cabling 2,50,000
11 Software
MS Office
Server, CALs, Database, Operating System + 9,50,000
12 Electricity Generator 10,00,000
Total Investment 75,42,000
B: Annual Recurring Expenses for IT/Internet Set up
Sr.
Particulars Amount Rs.
1 BSNL Internet Connection Port Charges 2 MBPS 8,00,000
2 BSNL Local Lead 1,00,000
3 Annual Maintenance 5,00,000
4 Software Licenses 5,00,000
Total IT Recurring 19,00,000

C: Operating & Training Expenses for 12 months
Sr.
Particulars Amount Rs.
1 Training Material & Assignments for 200 trainees 6,00,000
2 English Language Teachers 8 @ Rs. 12,500 per month 12,00,000
3 Computer Proficiency Teacher 8 @ Rs. 10,000 per month 9,60,000
4 It Technicians 2 (1 for each shift) @ Rs. 10,000 each. 2,40,000
5 Team Leader 2 (1 for each shift) @ Rs. 10,000 each. 2,40,000
6 Quality Assurance Staff (2 for each shift) @ Rs. 8,000 each 3,84,000
7 Online Testing 8,00,000
8 Electricity 10,00,000
9 Telecommunication (except Internet) 1,20,000
10 Provision of Tea, Coffee etc. 2,00,000
11 Trainee Stipend @ 1500 per month 36,00,000
12 Traveling etc. 1,00,000
13 Other expenses 2,00,000
14 Contingencies @ 10% of total exp. 9,64,400
Total Expenses 1,06,08,400
D: Total Project Expenses
A: Capital Expenditure Rs. 75,42,000
B: IT/Internet Expenses Rs. 19,00,000
C: Training & Operating Expense Rs. Rs. 1,06,08,400
D: Management Fees for Project Rs. 20,00,000
Total Cost Rs. 2,20,50,400
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9. Financial Feasibility
Once the proj ect is implemented and capabilities are built, the unit would be
handed over to the private partner. The financial feasibility for such a unit is
shown as under:
A: Annual Operating Expenses (two shifts)
Sr. Particulars Amount Rs.
1 Continuing Training Material etc. 3,00,000
2 English Language Teachers 1 @ Rs. 12,500 per month 1,50,000
3 Computer Proficiency Teacher 1 @ Rs. 10,000 per 1,20,000
month
4 Online Testing 2,00,000
5 Electricity 10,00,000
6 Telecommunication (except Internet) 6,00,000
7 Provision of Tea, Coffee etc. 2,00,000
8 Agent Salary @ 3000 per month all inclusive for 180
agents
64,80,000
9 Team Leader & Quality Staff Salary @ 4000 per 9,60,000
month for 20 nos.
10 Manager s Salary 2 @ 30,000 per month. 7,20,000
11 Traveling etc. 2,00,000
12 Other expenses 5,00,000
13 Contingencies @ 5% of total exp. 5,71,550
Total Expenses 1,20,01,500
B: IT & Internet Cost
Sr. Particulars Amount Rs.
1 BSNL Internet Connection Port Charges 2 MBPS 8,00,000
2 BSNL Local Lead 1,00,000
3 Annual Maintenance 5,00,000
4 Software Licenses 5,00,000
Total IT Recurring 19,00,000
Total Expenses Rs. 1,39,01,500
Annual Depreciation Rs. 25,14,000
Total Costs Rs. 1,64,15,500

Financial Feasibility Calculation
Sr. Particulars
1 Total Annual Costs Rs. 1,64,15,500
2 Total Working days 300
3 No. of hours per day per shift 8
4 No. of man-hours for 180 agents 4,32,000
5 Hourly Revenue Required per agent for Break-even. Rs. 38
6 Daily Revenue for Break-even per agent Rs. 304
7 Average no. of Dat a Unit s Processed daily per agent
300
for a basic process
8 Revenue per Data Unit Rs. 1.20
9 Revenue per day per agent Rs. 360
10 Net Surplus per agent per day Rs. 56
Thus, t he proj ect is viable for even wit h a base level process. As t he
capabilities of agents are built, the unit can take up higher level processes that
would generate much higher per Data Unit revenue.
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10. Conclusion
Considering that the proj ect has all the ingredients for success and well as
inherent possibility for replication in other similar areas, it is recommended to
approve the project.