Some are making that argument, and there is an argument to be made. After all, the cost advantage of doing business in India has come under pressure as salaries for qualified Indian IT professionals reach record heights. Average Indian salaries in the field rose 12 percent last year, and they are expected to rise by about 15 percent across the industry again this year.
And as Indian salaries climb, many speculate that this presents opportunities for other offshoring hot spots, such as China, Eastern Europe--and even upstarts like Vietnam and Brazil. Some even speculate that rising salaries in India will erode the cost advantage over U.S. IT workers, ultimately returning offshore jobs to American soil. But that's only one side of the story. To paraphrase Mark Twain, the reported death of Indian outsourcing is greatly exaggerated.
The counterargument rests on two pillars: productivity and scale. Salaries may increase, but there are offsetting factors such as experience, infrastructure, high productivity levels and economies of
How can that be? If you subtract the salary advantage, what makes India different than China, Russia and the myriad other countries chomping at the bit for IT work?
One reason is that India has a multiyear experience advantage over other nations. First-generation IT offshore providers cut their teeth on mainframe legacy code maintenance--the gritty work that few IT professionals in the United States care to do anymore. Now Indian IT companies are hitting the sweet spot of the enterprise application package market, offloading many of the high-volume, routine tasks that chief information officers struggle to maintain with high-cost U.S. resources. Countries like China and Russia simply don't have the experience to handle these tasks, and it will take years for them to come anywhere close.
Better backbone
Another reason is that India has vastly improved its IT infrastructure. A few years ago, large-scale projects required mirrored offshore hardware/software environments that were expensive to set up and a nightmare to keep in sync. That's no longer the case--distributed system development is now the de facto standard in many IT shops. India's IT infrastructure improvements enable Indian businesses to match salary increases with productivity improvements.
What's more, India has achieved global leadership in adopting continuous quality improvements that guarantee mature business processes and ongoing productivity improvement. By creating real software factories, Indian companies leverage the power of doing it right the first time. The leading software quality methodology in the world today is the Software Engineering Institute's Capability Maturity Model, or CMM. It is no accident that two-thirds of the world's CMM Level 5 organizations are based in India. Other countries will get there, but it's going to take time.
In addition, many India-based companies have discovered the leverage in India's university system to achieve increased efficiency. While it's unrealistic
Finally, India is rapidly creating huge economies of scale in IT offshoring, which further offset the inflationary pressures of salary increases. To counter wage increases, many offshore outsourcers are implementing large team sizes and long-term projects to help maintain utilization levels at above 75 percent. With larger teams comes the ability to include new college graduates in the mix, enabling them to train on the job.
While Indian IT salaries are undeniably on the rise, don't think that this will derail the offshore-to-India IT locomotive. Offshore service providers continue to find ways to provide their customers with increased productivity and scale, thus ensuring that India will not easily cede its current dominant share of the global IT offshoring market. And with the Indian government's focus on dramatically upping the supply of technical graduates over time, it ensures that India keeps moving up that steep productivity curve. That's the power of productivity--and India has figured it out.
Biography
Marc Hebert is executive vice president of Sierra Atlantic, a Silicon Valley-based application development company that has a branch in India.
See more CNET content tagged:
India, Capability Maturity Model, salary, distributed system, Russia
But I would like to emphasize that the "high-cost U.S. resources" that many "Experts" in your field fail to fully explain is just as much a cause of the "high-cost" of living here in the U.S. rather than the perceived self-indulgence and lack of skill of the American IT worker.
Being a victim of the 2001 downsizing trend and subsequently a casualty of the offshoring phenomenon, I was initially very upset. I, like many other American IT workers had to struggle and suffered quite a bit.
I have since started my own IT business and I can better understand and relate to the bottom-line issues that senior management faces. Offshoring is a reasonable alternative in many situations.
I just wish that somewhere in the text of these types of articles, someone would have the wherewithal to mention that the American way of life is extremely expensive. And a large majority of the companies that are offshoring are doing so the sell products and services to the very same people that they have laid off.
It seems that training software people is relatively easy and capital investment to get started is relatively small. Software tooling and PC's are extremely easy to get and standard world wide.
Intelligence is extremely well spread around the world unlike oil. Still need good education but knowledge is extremely difficult to hide in the internet days.
So low-wages and good education are attracting businesses. But why do people have low-wages ? Most often because people are forced into low-cost of living. Why?
Because they are forced into a sober life.
What if European or American programmers would chose for a different life-style ? Would they become competitive again ?
I know it's a kind of strange however it is as if : "sober life-style" is the source of "competitivness"
But I would like to emphasize that the "high-cost U.S. resources" that many "Experts" in your field fail to fully explain is just as much a cause of the "high-cost" of living here in the U.S. rather than the perceived self-indulgence and lack of skill of the American IT worker.
Being a victim of the 2001 downsizing trend and subsequently a casualty of the offshoring phenomenon, I was initially very upset. I, like many other American IT workers had to struggle and suffered quite a bit.
I have since started my own IT business and I can better understand and relate to the bottom-line issues that senior management faces. Offshoring is a reasonable alternative in many situations.
I just wish that somewhere in the text of these types of articles, someone would have the wherewithal to mention that the American way of life is extremely expensive. And a large majority of the companies that are offshoring are doing so the sell products and services to the very same people that they have laid off.
It seems that training software people is relatively easy and capital investment to get started is relatively small. Software tooling and PC's are extremely easy to get and standard world wide.
Intelligence is extremely well spread around the world unlike oil. Still need good education but knowledge is extremely difficult to hide in the internet days.
So low-wages and good education are attracting businesses. But why do people have low-wages ? Most often because people are forced into low-cost of living. Why?
Because they are forced into a sober life.
What if European or American programmers would chose for a different life-style ? Would they become competitive again ?
I know it's a kind of strange however it is as if : "sober life-style" is the source of "competitivness"
Its seems that the core of the debate is not loosing out the war of IT outsourcing or new age competitors coming up as a threat, its more about digging the jem which has established India as a reliable and affordable Outsourcing destination.
Aanywaz, none of the my comments would either be appreciated or taken heed off, as these guys would comeout time and again giving suggestions and methodologies to unroot something which is out of their scope.
Its seems that the core of the debate is not loosing out the war of IT outsourcing or new age competitors coming up as a threat, its more about digging the jem which has established India as a reliable and affordable Outsourcing destination.
Aanywaz, none of the my comments would either be appreciated or taken heed off, as these guys would comeout time and again giving suggestions and methodologies to unroot something which is out of their scope.
- Mohan babu, Author/Consultant
http://www.offshoringmanagement.com
- Mohan babu, Author/Consultant
http://www.offshoringmanagement.com
Ramesh Krishnamurthy
Ramesh Krishnamurthy
- economies of scale
- by a2lgo November 1, 2005 10:07 AM PST
- I agree with Marc's view, economies of scale is very strong key word in any industry. rising salary will not affect the growth in short span of 10-20 years but in long run it will definitely have an effect simillar to what happened with steel and auto industry in United states. Indian Software companies need to ba aware of that reality.
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