MOST Americans or Britons would be hard pressed to name their national call-centre champions or top providers of IT services. In India they are like rock stars, endlessly featured in the media. All of them claim to be hiring by the thousands every month. New business models come and go. Hero bosses such as Raman Roy, chief executive of Wipro Spectramind and “father of Indian business-process outsourcing” (an industry all of six years old), have developed the same preposterous swagger adopted by erstwhile leaders of America's dotcom boom. Is India heading for a fall, too?

India's IT industry is growing at a vertiginous rate. A dozen years ago, the entire country boasted just four or five IBM mainframe computers, says Lakshmi Narayanan, the boss of Cognizant, a big Indian IT-service company. Last year the industry notched up sales of $16 billion, three-quarters of which went abroad, according to NASSCOM, the lobby group. By 2008, says NASSCOM, annual sales are likely to surpass $50 billion. The big firms are hiring about 1,000 graduates a month straight from Indian technical colleges.

The sales of Infosys alone, one of the top providers of IT services, have grown more than eightfold in five years, to over $1 billion in the year ending in March 2004. The firm claims to run the biggest corporate training facility in the world, with 4,000 students at a time and three courses a year. The company's chairman, Narayana Murthy, says Infosys is going to expand further.

India's BPO industry is younger and smaller, but growing even faster. Last year its sales were $3.6 billion; by 2008 they are expected to reach $21 billion-24 billion, says NASSCOM. About 70% of the BPO industry's revenue comes from call-centres; 20% from high-volume, low-value data work, such as transcribing health-insurance claims; and the remaining 10% from higher-value information work, such as dealing with insurance claims. But the BPO industry is more fragmented than the IT business, and could change shape rapidly.

The roots of India's competitiveness in IT reach back to the late 1980s, when American firms such as Texas Instruments and Motorola came to Bangalore for the local talent. Other American firms, such as Hewlett-Packard, American Express, Citibank and Dun & Bradstreet, followed these pioneers, setting up their own “captive” Indian IT organisations in the 1990s.

The Indian companies got their first big boost with the so-called “Y2K crisis” at the turn of the millennium. IT experts feared that because elderly software code allowed only two digits to record the year, some computer systems would read the year 2000 as 1900, causing mayhem as systems crashed. Big western IT-services companies such as IBM, Accenture and EDS ran out of engineers to check old code and subcontracted some of the work to Indian firms instead.

Once the Indians had saved the world, they set out to conquer it. Wipro, TCS, Infosys and their peers grabbed a growing share of the global giants' business. They made most inroads in the routine but costly business of maintaining business-software applications from vendors such as PeopleSoft and SAP.

As the Indian firms grew, the captive operations of foreign firms became less competitive, and most of them have now sold out. Dun & Bradstreet led the field, with its captive transforming itself into Cognizant in 1994. More recently, Citibank sold some of its Indian IT operation to an Indian financial-software specialist called Polaris. Deutsche Bank sold its captive to HCL, another Indian firm. The big western IT specialists, meanwhile, have squared up to the new, low-cost competition by hiring in India themselves. Accenture's Indian payroll has shot up from 150 in 2001 to about 10,000 now.

India's BPO industry also started with foreign captives. The pioneers were GE, American Express and British Airways, who all arrived in the late 1990s. These companies were joined by home-grown call-centre operators such as 24x7, vCustomer, Spectramind and Daksh. Spectramind has since been bought by Wipro, and Daksh by IBM.

These Indian firms also face competition from specialist American call-centre companies which, like the global IT firms, have been adjusting to the cheap Indian competition by taking themselves to India. By far the most successful of these foreign firms has been America's Convergys, which with a total of around 60,000 employees is the biggest call-centre operator in the world. By the end of next year, says the company's local boss, Jaswinder Ghumman, Convergys hopes to employ 20,000 people in India. Recently a fourth wave of BPO start-ups, many of them funded by American venture capitalists, has been experimenting with the remote delivery from India of all sorts of work, from hedge-fund administration to pre-press digital publishing.

In both the IT and the BPO industries, the leading companies in India are fighting hard to win a broader variety of work, particularly higher-value activities. EXL Service carries out a broad range of insurance work for British and American firms, from finding customers to underwriting policies, administering claims, changing policies and providing customer services. The company is a licensed insurance underwriter in 45 American states, with applications for the remaining states pending. “These are very high-end jobs,” says EXL Service's boss, Vikram Talwar.

In September, ICICI OneSource, an Indian BPO company which has so far concentrated on call-centre work, took a 51% stake in Pipal Research, a firm set up by former McKinsey employees to provide research services for consultants, investment bankers and company strategy departments. Mr Roy of Wipro Spectramind says that his firm is moving from basic call-centre work—helping people with forgotten passwords, for instance—to better-quality work in telesales, telemarketing and technical support. Wipro Spectramind is also spreading into accounting, insurance, procurement and product liability. “We take the raw material and convert it,” says Mr Roy, his eyes gleaming. “That is our skill—to cut and polish the raw diamonds.”

The top end of the market is more interesting still. Viteos, an Indian start-up, pays new MBA graduates in Bangalore $10,000 a year to administer American hedge funds, work that involves reconciling trades and valuing investments for a demanding set of customers. Shailen Gupta, who runs an offshore advisory consultancy called Renodis, has been helping one of his American customers to hire Indian PhDs to model demand planning.

The best Indian IT and BPO companies are aiming not only to lower the cost of western white-collar work, from software programming to insurance underwriting, but to improve its quality as well. Firms such as Wipro, EXL Service and WNS, a former British Airways BPO captive that won its independence in 2002, are applying the same management disciplines to the way they provide services that GE applies to its industrial businesses. Tasks are broken into modules, examined and reworked to reduce errors, improve consistency and speed things up.

In both industries, the influence in India of GE, which has applied the “six sigma” method of quality improvements to its industrial businesses for years, is pervasive. Mr Roy of Wipro Spectramind used to run GECIS, which was then GE's BPO captive but is now being sold. It had become “too fat and happy”, according to one Indian competitor. One of the founding investors in Mr Talwar's company is Gary Wendt, the former head of GE's financial businesses. Wipro's chairman, Azim Premji, has introduced so many of GE's techniques to his company that the firm is known as India's “baby GE”.

Certainly, “Wiproites” seem to share the intensity of GE's employees. Six-sigma “black belts” hurtle about Wipro's 100-acre technology campus in Bangalore, improving everything from software coding to the way the company cleans its toilets. (Among other things, this involves analysing liquid-soap availability, tissue supply and waste management, explains a serious-looking Wipro official.)

The claims of India's marketing men tend to be a little ahead of reality. Amar Bhide of Columbia University, who has spent most of the past 18 months in Bangalore, is sceptical. The Y2K crisis pushed “the grungiest IT work on to India's best software engineers,” says Mr Bhide. “It was like asking Oxford graduates to dig ditches. It created the impression that Indians were fantastic at programming.”

Still, the outline of a distinct brand of Indian competitiveness—in performing carefully defined, rules-bound, repetitive white-collar business work—appears to be taking shape. Already, the Indian IT firms, along with some of the foreign captives in India, boast the world's most impressive set of international quality certifications for software engineering.

In the longer term, India's success at winning global white-collar work will depend on two things: the supply of high-quality technical and business graduates; and, more distantly, an improvement in India's awful infrastructure.

India's most often-cited advantage is its large English-speaking population, which has helped to fuel the call-centre boom. Yet already the market for call-centre workers is tightening. Pay and staff turnover are shooting up as operators poach staff who have already undergone costly “accent neutralisation” training at rival firms. Even the best call-centre operators in India lose about half their employees each year (but then turnover in British call-centres is about 70%). One Convergys job advertisement in the Times of India promises to make prospective call-centre employees “a prime target of all the dons of the industry. You will be hunted down, with almost a king's ransom on your head.”

Part of the problem is that call-centre work tends not to be much fun—although Indians enjoy much better pay, relative to other local jobs, than British or American call-centre employees. At Wipro Spectramind, two “fun day” employees try to jolly the place up as rows of cubicle-farm workers use a piece of software called “retention buddy 1.3” to dissuade Americans from cancelling their internet subscriptions. Sanjay Kumar, the boss of vCustomer, one of the few remaining independent Indian call-centre companies, says the industry's growth potential may be limited. He thinks the total pool of call-centre workers is only about 2m, and awkwardly scattered across India—although that still leaves a lot of room for expansion from the current 300,000 or so.

According to official figures, India produces about 300,000 IT engineering graduates every year, against America's 50,000. But the quality is mixed. The best Indian IT firms fight over the top 30,000-40,000 graduates, a pool in which foreign companies such as IBM and Accenture also fish. Wage inflation at Wipro and Infosys is running at 15-17% a year, and is likely to worsen. Assuming a supply of 40,000 decent IT engineers a year, McKinsey's Diana Farrell thinks that India will “not even come close” to meeting the demand for 1m offshore IT and software workers her company forecasts for 2008.

The supply of top-quality Indian MBAs is also thinner than it might look at first sight. Indian business schools produce about 90,000 graduates a year, but everybody fights over the top 5,000 from the six state-run Indian Institutes of Management. “I'm afraid to say that for some of the private business schools it is two classrooms, 25 desktops, four faculty members, 600 books and you're away,” sniffs one state-sector professor.

The biggest supply may be of BPO workers who do not need to use the telephone much: claims processors, credit-card administrators, health-insurance workers and so on. Indian universities churn out 2.5m graduates a year. Perhaps a quarter to half of these have the right skills to do this sort of BPO work, says NASSCOM's president, Kiran Karnik. To improve that ratio, he is working with India's University Grants Commission to have three-year degree courses supplemented by one-year technical certificates in IT or American accounting standards.

Mr Karnik thinks that the market itself will exact higher standards. The inferior private technical institutes and management schools that have sprung up since the government deregulated higher education in the 1990s charge about three times the fees of the elite state institutions, says Mr Karnik. No doubt the private schools will try to do better, but it will take time. Meanwhile, growing demand for offshore IT and call-centre workers is already directing companies to other parts of the world.

The call-centre business in the Philippines is booming. China is attracting a healthy share of manufacturing-related R&D work: GE, Siemens and Nokia all do research there. Although China's IT industry is patchy and much less well organised than India's, this is likely to change in the next five years: China already churns out more IT engineers than India. Atos Origin, a big European IT-services firm, says it is more interested in China than in India because there is less competition for engineers.

The IT industry in eastern Europe and Russia is also scattered and poorly organised, but the talent is there if you look for it, says Arkadiy Dobkin. He is the head of Epam, an IT firm that claims to be the largest provider of offshore IT services in that part of the world, with over 1,000 engineers in Budapest, St Petersburg, Minsk and Moscow. “The engineers that Russia produces are comparable to India's,” says Mr Dobkin. “The educational machine is still working.” He reckons that a Russian or Hungarian IT engineer costs “about the same, or a little bit more” than an Indian engineer. American multinationals are already scouring the region for talent.

For the moment, India accounts for about 80% of the low-cost offshore market, and is probably exerting a stronger pull than ever. In the long run, however, it is sure to face hotter competition, especially from China and Russia. When it does, the abysmal quality of its infrastructure will become crucial. The most important thing to improve is India's airports, says Mr Murthy of Infosys: “The moment of truth comes when foreigners land in India. They need to feel comfortable.” After airports, Mr Murthy lists better hotels, roads, schools and power supply, in that order.

The headquarters of Infosys in Bangalore sit on 70 acres of pristine lawns and paths. The facilities include open-air restaurants, an amphitheatre, basketball courts, a swimming pool and even a one-hole golf course. “When we created this campus, we wanted everything to work as well as it does in America, to be as clean as America is,” says Mr Murthy. But outside the perimeter walls, the place remains unmistakably India.

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