An imminent skills crisis in the Indian business process outsourcing (BPO) industry will force up costs and fuel growing concerns over security and service quality, according to a new report from analyst firm Gartner. As a result, UK firms are being advised to keep closer tabs on their outsourcing providers.

Gartner reported that India boasts a large educated workforce with 2.5 million students graduating each year. However, there is a potential shortage of trained staff with good English language skills suitable for the call centre industry.

According to the Indian government, the call centre industry will need one million people by 2009, but there will be an expected shortfall of over a quarter of a million.

This skills gap will lead to a higher staff turnover as employees will be able to change jobs more frequently to further their careers, said report author Ian Marriott. And higher costs will come as a result of firms being forced to raise salaries to retain staff.

Martyn Wood, chairman of the UK's National Outsourcing Association, warned the BPO industry against lowering its recruitment standards because this would reduce service quality. It could also raise further doubts about security following reports earlier this year that some Indian call centre staff were involved in identity fraud.

Gartner said UK firms using Indian service providers should monitor rates of staff turnover and enforce strict service level agreements. Marriott added, "It is also worth including contractual clauses that keep key staff working on your firm's projects."

The report also advises UK firms to consider service providers in other countries, such as Sri Lanka, China and the Philippines.

In September, India-based HCL Technologies announced plans to develop a call centre in Northern Ireland, following the trend for Indian firms to meet demand for outsourcing services from multiple locations.