Fueled by the increasing outsourcing of jobs by U.S. companies, a second wave of commercial real estate companies is looking to set up shop in India.
The largest U.S. real estate companies, including CB Richard Ellis, Cushman & Wakefield, Jones Lang LaSalle and Colliers have all had a presence on the Indian subcontinent for several years to help U.S corporations set up call centers and other operations in what is now a white-hot trend. According to a 2003 forecast by Forrester Research, the acceleration in outsourcing will result in 3.3 million American jobs moving offshore by 2015, with 70 percent of those jobs moving to India.
Capitalizing on the merger between CB Richard Ellis and Insignia/ESG last year, one second-tier company, CRESA Partners, recently started operations in India, hiring an Insignia team of around a dozen that wasn’t absorbed when the two companies combined.
Another firm, Dallas-based Mohr Partners Inc. started up operations this summer through a partnership with Indian company Arora & Associates.
“We recognized a need for a strong India presence based on the significant number of American companies that are outsourcing,” says William Goade, Founding Chairman of CRESA Partners, which undertook the new operation as part of a partnership with its international affiliate, ATIS Real. “India offers many opportunities for our clients who are outsourcing functions such as call centers, software development and accounting.”
Ashok Kumar, the former head of Insignia’s India operations, was hired to head up CRESA’s main office in Mumbai. He said the company will soon expand to Bangalore and Delhi, and in the next three months grow to 25 employees.
Kumar said the company will differentiate itself from the competition by being the only U.S. tenant-rep firm in India, focusing exclusively on tenants, rather than landlords. Other tenant-rep firms, like Staubach and Studley, haven’t moved in yet, but “most of them are thinking about India now,” said Kumar.
Anurag Munshi, an associate director of research for Jones Lang LaSalle India, agreed that a second wave of U.S. commercial real estate companies could be on its way. The first wave came in the mid-1990s, in response to liberal trade and globalization policies undertaken by the central government. CB Richard Ellis started up an office in 1994, followed by Cushman & Wakefield and Jones Lang LaSalle in 1998.
Munshi said JLL, which has four full-service offices and around 130 employees, was looking to expand with two new project offices in Hyderabad and Pune. CB Richard Ellis says it has the largest presence of any company in India, with offices in six cities and 400 employees. Competition aside, in a country with a population of 1.1 billion, growing at 7 percent of GDP- “a lot of people and a lot of space,” says Kumar of CRESA – there is “probably enough room for all the players.”
Currently, there are about 125,000 people employed in India by foreign companies outsourcing operations there, drawing from a vast labor pool of 2.2 million new graduates a year. The total employment figure could reach 600,000 by 2007, according to one study. Most of the outsourcing market – around 65 to 70 percent – consists of U.S. companies, followed by around 20 percent from Europe (mostly Britain, France and Germany) and 10 percent from Asia.
While call centers are a big part of outsourcing operations, “it’s not all call centers,” said Kumar. He said research and development, manufacturing, biotechnology, software development and business process outsourcing are all emerging trends.
Anshuman Magazine, managing director of CB Richard Ellis South Asia, said in an email that most of the work being outsourced currently is from banks, financial institutions and insurance companies.
Some of the areas that might grow in the future are “HR processing, healthcare, information delivery, automotives, pharmaceuticals, airlines, and travel and hospitality.”
As far as the types of real estate services offered, Magazine sees providers getting involved at an earlier stage of the game when companies are planning their outsourcing operations. Facility management is also increasingly important, especially for the large Business Process Outsourcing (BPO) firms, said Munshi.
U.S. companies are also looking to woo Indian companies, as clients. Magazine writes that although CBRE has a “healthy mix of Indian and multinational clients, many of them have not reached the maturity level to take professional assistance in the real estate area.” The trend could be changing as Indian companies become “more global in their outlook,” he added.
Other hurdles remain, however. Some observers note there are major infrastructure issues. An outdated transportation system and a road network in need of repair make it difficult to move goods around, driving up costs. And the power supply cannot keep up with demand, with most factories setting up their own generating system. Additionally, by most estimates, 90 percent of land titles in India are unclear, driving up the cost of real estate. Business permits can also be hard to come by, according to news accounts.
Employee attrition at call centers is another issue. One study pegged the current average rate of attrition at 30 to 35 percent. Employees who answer calls from U.S. customers assume pseudonyms and have to learn foreign accents, and work at night to cater to U.S. time zones.
But Magazine notes that turnover rates “are still relatively lower than in the U.S.” He sees human resource initiatives – such as offering scholarships for part-time MBAs, job rotation, and incentive-based bonus structures as helping to alleviate the problem. Companies are also realizing that tapping India’s huge manpower resources should not be restricted to big cities only, and as a result small towns and “Grade B” cities have become popular destinations for recruiting. Salaries for call center employees are inexpensive, with employees earning roughly $2,300 to $3,200 annually – versus ten times that in the U.S.
Finally, there is the political issue of exporting U.S. jobs to India. According to Magazine, “that is something we have come across, and it is an issue that has to be handled with sensitivity. I think the economics of outsourcing are very strong and the temptation to resist it on emotional grounds is only temporary.”
“Having said that, companies are aware that offshoring jobs can create political issues for them and are thus extremely cautious in their approach and expect the highest level of confidentially from service providers like us at the planning stages of such a move,” he wrote.