Forbes has some scary statistics on the salary hike rate in India. The 2007 rate is 15.1%, up from 14.4% the previous year. 2008 forecast: 15.2%. This is the fifth consecutive year of salary growth above 10%.
Is Death of Indian Outsourcing all that far out?
Assuming a 15% y-o-y salary hike rate, and a 2007 cost advantage of 1:3 in favor of India, and assuming that wages remain constant in the US, in 2015 the cost advantage disappears.
So what would need to happen in the next 8 years to find another sustainable competitive advantage for India, considering that India doesn’t do IT products?
It could be, that the IT skill-base in India is substantially larger than what exists in the West, in which case the outsourcing will continue purely on the basis of skills and not cost.
However, a large portion of the 4 Million people that the IT/ITES industry employs are not exactly skill-differentiated. That segment of the industry will need to go to a lower cost-structure.
In India, the bottleneck for going to that lower cost-structure will be finding English-speaking people. Cleaning up accents is one thing. Teaching people to converse fluently in a new language is quite another. My sense is that the Call-Center work will move back to the US.
BPO, at least to some degree, would become automated via SaaS. Even Indian BPO shops would start streamlining by deploying SaaS solutions to make their own processes more efficient. Trimming of fat will definitely be in order.
One final point – Politics.
If the Democrats get the White House for these next 8 years in question, chances are, they would try to offer incentives to US companies to keep jobs in the US.
Couple that with instability in Pakistan post-Musharraf, as that country learns to operate with a new system called Democracy, for lack of a better word. It will hang over India like a dark cloud.
So, overall, are we to expect the Indian IT/ITES industry growth momentum to subside in 2015, or even before?