The thick, overpowering smell of cow dung hangs heavily in the air. A narrow road winds through barren farmlands. This is Eswaran Koil Street, in Kizhanur village, Thiruvallur district, about 50 km from Chennai. Several huts and small houses line the street. There is also a slightly bigger building. This is where Sharmila lives. This is also where she has her office.

Sharmila is not your average village belle. She is pursuing an MBA degree through distance education. She is barely out of her teens, but is already an entrepreneur. She runs what is, perhaps, India's first rural BPO facility.


Her single-room office on the first floor is unpretentious. The five computers perched on ordinary tables provide a stark contrast to the traditional environment of the house. Fourteen people work in this office in two shifts - six operators and one auditor in each team.

Successful experiment: Pradeep Nevatia (extreme left) and Sharmila (extreme right) with the BPO workers from Kizhanur village in Tamil Nadu

Inside the office, the only sound is the busy clatter of the keyboards. Six pairs of eyes dart from keyboard to monitor to a sheaf of papers on the desk. Sharmila's employees work as data-capture operators. They are typing, what seems to be, a legal document pertaining to a court case in the US. They have been doing this for two months now. Sharmila and her team are convinced that they have hitched on to India's BPO boom. "I am really happy. This is the result of teamwork. If things go well, we will add 20 more people in the next few months," she gushes.

But Pradeep Nevatia has bigger dreams. He wants to have at least 100 people working for him in Kizhanur. He is the managing director of Lason India, a subsidiary of the $167-million BPO firm Lason. Sharmila works as a business associate of Lason. She implements small, low-skill portions of BPO contracts that Lason wins from big customers around the globe.

Over the last few months, Nevatia and his team gave her an extraordinary level of support - technical, managerial, and motivational - to help start this centre. And they are willing to do all it takes to ensure that her centre runs well.

Nevatia is hunting for seven more entrepreneurs like Sharmila to start similar centres in villages. He will give them as much support as he is giving Sharmila. Nevatia wants to prove that a village BPO model will work.

Sections of the Indian BPO industry, especially those at the lower end of the value chain, are watching this experiment with some interest. Today, most BPO companies are caught in a pincer. Global competition and aggressive customer expectations are pushing down billing rates. On the other hand, attrition and the growing cost of talent is pushing up costs. Several BPO companies are turning to smaller cities in search of larger, cheaper and more loyal talent pools. Even higher-end software firms like Cognizant Technology Solutions are setting up centres in places like Coimbatore. But no one has entered a village yet, nor do they intend to.

Despite Lason's show of faith in Sharmila and those like her, the notion of rural BPO centres still seems far-fetched. There are several reasons why such initiatives may not succeed. First, most BPO firms are more comfortable with large centres with capacities of 1,000 seats and above. Anything smaller is considered uneconomical. A rural environment just does not provide large enough talent pools to consider such centres. Second, despite India's progress in telecom, connectivity in rural areas is a big worry. Lason is wiring Kizhanur to its office through n-Logue Communications, a wireless in local loop rural connectivity company set up by IIT- Madras' TENET group. But it remains to be seen if the model will work on a larger scale. Third, there is bound to be stiff opposition from international customers on issues including quality, reliability, infrastructure, delivery, etc.

Security will also be a big issue. "In the backdrop of the Mphasis-BFL episode [where four employees duped US customers and siphoned off money from their accounts], clients will be extraordinarily sensitive about security," says Ravindra Datar, principal analyst, BPO, Asia-Pacific, at Gartner, a research firm. "It will be difficult for them [customers] to understand this. They will never be excited about this idea," concedes Nevatia.

So why is Nevatia still pushing forward with this experiment? Lason operates in the lower end of the BPO business. A big chunk of its revenue comes from high-volume, low-value services like data capture, data and document management, etc. The margins are wafer thin and are forever under pressure. During 2003, Lason managed a profit of a mere $1.1 million on revenues of $167 million. "In the last few years, our employee strength (including that of its business associates) has reduced from 7,500 to 5,300. But revenues have doubled. More importantly, we have given discounts of 20-30 per cent to our customers," says Nevatia.

These discounts were possible only because Lason unveiled a major small town initiative about a year ago. Its business associates set up centres in Pondicherry and Kancheepuram. Today, about 1,000 people work in these centres. Another 3,000 will be added in similar centres to come up in Salem, Tiruchy, Madurai, Villupuram, Mysore, Vijaywada and Kanyakumari. This has helped bring down employee costs. "If we had not gone into small towns a year ago and saved costs, we might have been under enormous pressure now," Nevatia concedes. Margins will continue to shrink. "Three years hence, customers may demand a 50 per cent cost reduction, but salaries will double. Where will you hide then?" he quips.

Villages may provide the answer. In villages, salaries may be up to 50 per cent lower than in the cities. Moreover, real estate may be about five times less expensive. These two overheads alone can make a substantial difference to Lason's cost competitiveness. "We don't feel the cost pressure now. So this is a good time to experiment. We have the time to make the mistakes, correct them and refine the model," he explains.

There are two reasons why Lason might succeed. First, Lason's BPO work lends itself quite well to the village BPO model. It works predominantly in the healthcare and financial services sector, processing health insurance claims, airline bills and credit card applications. A big portion of the work is data capture or data entry. Nevatia calls this the 'key to what you see' kind of work. This is low-skill work that can be done by anyone who can read and write English. It is this that he wants to move to the villages. "If we can offshore work from USA to Chennai, I don't see why we can't move it from Chennai to Thiruvallur," adds S.V. Ramanan, a member of Lason's senior management forum and a key member of this initiative.

Second, Nevatia has a track record of making such experiments work. In 1999, he pioneered the business associate model. Lason would win big BPO contracts, break them into smaller modules and distribute them among the associates. It would then aggregate the completed work and send it to its customer. "Initially, there was enormous resistance to this model - both from clients and even within Lason," recalls Nevatia. But this model is now a proven success. Lason now has 60 such associates, all of whom have stayed with the company for four years. That could make them more agreeable to the village BPO experiment.

Incidentally, India is not the only country to experiment with rural BPOs. Canada, for instance, is mobilising its predominantly rural population for BPO work. In a recent report, Xicom, a BPO services firm, argues that Canadian villages are also well suited for 200-300 people operations.

Could rural India be the next destination for BPO firms? "I don't imagine that BPO companies would go into villages immediately. However, one can't depend too much on the cities for too long. For low-skill work - the kind that an English speaking 10th-standard-passed candidate can do - villages may emerge as a good approach," says Gartner's Datar. At the moment, Lason is the only one giving it a shot.

The story will become more interesting only when other companies start their own rural experiments.