India has been regularly "labeled" as the ultimate software offshore outsourcing destination. Advantage India has been expressed in terms of location, better adaptation to english language, cost, quality talented pool and a young population.
However, it seems that India is fast loosing the low cost advantage due to inflating salary bills in IT industry. India is leading in terms of attrition and salary hikes. It is inevitable in a growing economy, but the question is – how long can we sustain this? I know of several software service companies where there is an annual increase of 40-50% (on the lower side) in salary bills. There is not a very high increase in skill level of the professionals either.
So what is the end result?
A declining profit curve (read it right – profit per person / per month)! It might not be immediately visible due to growing "net profit" which is increasing since all the companies are in a mad rush to hire as many professionals as they can to keep "up" their net profit by working in volumes as profit per person dips.
But this is definitely going to make the dent. And it is already visible in patches! Check out how a company decided to move to US to save money on his operational cost!
I have spoken to some HR managers about their "suggested" solution for this situation. In general I have heard of these two workarounds –
1. Moving up the value chain
2. Averaging of salary
Option 1, is most attractive. However it is not very easy for a company to move from an "outsourcing" business to a "consulting" business which is the next logical step in the value chain. It not only requires physical presence (unless someone comes up with an innovative way to do it online). But if any company can do it, nothing like that!
Option 2, is what most companies are doing. They hire a top professional and then make up for the high salaries by hiring several junior professionals to balance out the spike in salary and get an average salary which is profitable to them. This works and will work, as long as the company keeps expanding. But it has a limitation in terms of "critical mass" where it will no longer be feasible and the balancing act will become so complicated that it is bound to result in a miss. The worst thing is that a miss at that "critical mass" will result nothing but disaster.
At this point there is no "silver bullet" solution for this problem. However this is for sure that India will not remain an attractive destination for outsourcing for low cost labor for long. Either it will loose its edge to emerging low cost economies or it will reinvent itself as an economy which is higher up the value chain.
Only time will tell, which way things go!
I’ve been feeling this for quite some time now, and sometimes it’s even cheaper to outsource some works within Japan than offshoring at India. So in conclusion, I’d be willing to pay even $50/hr or more if the talent is skilled and can do the work in a short time.
Paying $50 for 1 hour and paying $10 for 10 hours, which is better? 😉
India’s economy should grow, and we (the past-to-current leaders of economy should not stop their growth).