categories

HOT TOPICS

Subscribe to our Feed

Indian IT Industry: The Next 8 Years

Posted on Thursday, Feb 21st 2008

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%.

Good lord!

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?

Hacker News
() Comments

Featured Videos

Comments

This is a very well written article. Also as Anand Mahindra puts it China too is putting a lot of pressure
on the Indian IT industry.

Nitin
my2dimes.blogspot.com

Nitin Rao Thursday, February 21, 2008 at 5:52 AM PT

Interesting thoughts, Sramana. I agree that the salary hike, lack of english fluency and lack of infrastructure (roads etc) are huge impediments (and represent a bear case for Indian IT folks). I don’t see this as a 2008 negative on the Industry simply because I don’t see decent alternatives that will make meaningful impact. I get the China argument (and agree with it) but moving out of India at the drop of a hat is not easy, and english fluency is a bigger issue in China (as well as in eastern europe which also represents a potential pool of talent. However it definitely represents a trend in 2-3 years.

To retaliate, Indian IT companies will establish operations in China, leverage the cost advantage there, and continue to accrue profits to the parent that’s based in India. Therefore, from an investor’s point of view, I don’t think it’s bad that the work gets done in part in China (and elsewhere), while the brand is located in India.

Therefore, I would recommend that the Indian software outsourcers invest heavily in building a brand that represents something more than “lower cost”, reposition themselves as global manufacturers of software (vs Indian manufacturers), and seriously invest in componentizing their services offerings in order to drive up re-use (and therefore margins). All of these things are happening, but not fast enough in my view.

Nimish

Nimish Mehta Thursday, February 21, 2008 at 7:57 AM PT

Nice piece Sramana.

1) One of the ways that some of the IT services companies can compete is by moving up in the value services chain. move beyond the regular support/maintainence and offer more biz intelligence stuff.

2) several of the IT services companies are already setting up shop in other countries (latin america, vietnam, china etc.) or making acquisitions. So, when India loses their cost advantage, they can still maintain part of it by offloading work to these other centers. would this be sustainable is another question — because very few could match up with the number (not talking abt quality here) of skilled folks in india.

Pranav Thursday, February 21, 2008 at 9:28 AM PT

I agree, that the Indian company’s brand may be leveraged, while the actual work gets done in another country. Even the US.

However, the Indian IT/ITES worker is going to face a traumatic middle-age crisis somewhere in the next 8 year time-window, I think.

Nimish, yes, I agree that this is not a 2008 phenomenon. But it is potentially a 2010 phenomenon. Or 2012.

Sramana Mitra Thursday, February 21, 2008 at 9:51 AM PT

that i agree with you..

one other thing that comes to mind is tapping into the emerging markets — and I mean really aggressively.

Currently, Indian IT companies are hugely vested in the US market. But US companies themselves, are tapping into the emerging markets for growth.

For example, look at IBM in the Indian market (they signed a billion dollar deal with bharti) and similarly, take a peek at HP’s latest earnings report. Both are being very aggressive in emerging markets like AP and LatAm.

the leading Indian IT biggies can step up the game in such emerging markets and go for the kill. That’ll not only reduce the reliance on US market but also provide room to grow as and when the emerging markets grow.

Pranav Thursday, February 21, 2008 at 10:21 AM PT

Yes, but the margin equation is very different in emerging markets.

Sramana Mitra Thursday, February 21, 2008 at 10:29 AM PT

that might be the case today — but look at india and china. the rate at which the IT infrastructure is being installed / upgraded in these markets – its come a long way.

a few years back, a bill dollar IT deal in India would have seemed like a far stretch.

very likely that these other markets will evolve the same way.

Pranav Thursday, February 21, 2008 at 10:51 AM PT

I agree with you, and I have said before, domestic producer-domestic consumer is a much more sustainable business model for India in the long term. Today, IT companies are doing less than 2% of their business in India. Over the next 8 years, this % needs to go up. In due course, Indian corporations also need to learn to expect to pay more for IT.

Sramana Mitra Thursday, February 21, 2008 at 12:12 PM PT

quite some coincidence sramana that article was published today

http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4261

Pranav Thursday, February 21, 2008 at 3:30 PM PT

Pranav,

What we’re talking about here has nothing to do with recessions. It is a general trend analysis.

Sramana

Sramana Mitra Thursday, February 21, 2008 at 4:06 PM PT

SM – Interesting thoughts. Going back to your cost advantage. It has been long predicted that Indian companies would lose this advantage by 2020.

Historically, cost was the very first driver of work to India. Since then, Indian companies have worked on building other core differentiators like Quality (CMMI, ISO, etc.) and Creativity/Innovation/R&D. Although advances in the latter are being made at a slow pace, it is an important and viable area to continue investing in for the Indian companies, as it helps improve their brand, margins, and most importantly, IT IS SUSTAINABLE. Although the typical Indian company is not into products yet, they still stand to gain and learn from their prestigious, game-changing neighbours like Google, HP, Microsoft, GE, and Adobe, who have setup R&D centers in India.

Another differentiator can be achieved by developing competenticies around industry subject matter expertise in specialized fields like Energy Trading, Financial Securities, etc.

Finally, one also needs to weigh in “availability” of services and the ability of a global company’s customer to be able to avail it 24×7. India (and China) provide the “time-zone” advantage, which is and will continue to be a significant differentiator. All things equal, this will never go away. This is an area that the Indian companies need to put more thought into and find effective/meaningful ways of including in their overall marketing/sales pitch.

Uday Kumar Friday, February 22, 2008 at 9:26 AM PT

Actually its not the salary perse that is the problem. For eg IBM (and others) has research centers in Japan – the highest cost geo. Hence, its the quality of output of research that leads to products that is lacking in India/RD centers.

Hence most (barring few) RD centers come under what can be termed as support-RD. The fact is that product companies (most, if not all) till so long used their india set ups as a cost-center or service counterpart of their exisiting/older products produce/enhance next versions here and there. Since topline is managed in west for products, its very easy to see why mgrs in US/Europe may see this as the best model for them. This leaves most of new product devlopement or IP development to be retained in west, thus India groups not very well trained to do products.

So as cost advantages erode, even such support RD/Innovation related activities may legitimately move back to the West – as Indian IT majors have not used the last several years to move into core RD work nor software products and did not show proof of RD/innovation coming out of india.

Number of patents on per capita RD engr-count basis and/or revenue generating products statistics can easily show this truth.

There also has been very few startup activity in products arena relative to services (software, chipdesign, retail)

It will be a very interesting next decade to see if we can re-invent ourselves to avoid the rug pulled underneath when services jobs shift to other geos.

Partha Saturday, February 23, 2008 at 10:40 AM PT

Its ironical that I landed on your blog through the Forbes story about Sridhar Vembu :) and then read this entry.

So product companies are starting to happen in India.

There are a lot of them in the Mobile space & a few in the Internet space.
Interestingly, both these spaces are more domestic focussed.
While there are a few internet companies that are developing global products, there are a lot more companies doing “indian” social networks, locals, search & even mail.

In general though the Product IT industry is quite nascent, but I do expect it to grow a lot, thanks to returning Indians who bring a wealth of experience in building successful products for stable economies.
The return of these experienced Indians, is made possible thanks to the growing Salaries.

I dont foresee, the Product IT workforce coming anywhere close to the Services IT workforce in size. So, yes a big chunk of indian IT industry will be impacted by the growing costs.

Mekin Monday, February 25, 2008 at 1:51 AM PT

Nice piece. Been a long time in which someone spoke about 8 years ahead…usually it is eight weeks, eight months, and max, eight quarters.

Rajesh Kumar Monday, February 25, 2008 at 3:37 AM PT

While I like to debunk your post completely, I will ask this simple question, if the wages go up by only 7% y-o-y from now on, will the IT Industry thrive till 2050 ? ;-)

Please get on the ground and check the starting salaries.

http://www.thehindubusinessline.com/2006/06/21/stories/2006062103800900.htm

“Cognizant Technology Solutions (CTS) has selected 572 students from Anna University as part of its campus recruitment.

It is learnt that the starting salary is about Rs 2.11 lakh a year during the six-month training period. On confirmation, the salary would be Rs 2.51 lakh. “

Let me put this is in laymans terms. CTS (CTSH) recruited 526 students in year 2006 for 2.11 Lakhs per annum ( 5410 $ / Year).

On confirmation (thats on 2007) they would get 2.50 Lkahs per annum (6435 $ / year)

All of the 562 students are working for top western clients (read AIG, JP Morgan, Mellon, Caterpillar, Holchim etc)

In USA, would you get a soul to do IT work for 6435$ per year ?

Dr.Dan Saturday, March 1, 2008 at 10:23 AM PT

Dan,

Absolutely not. There are a lot of nuances though. If you talk to clients, they will tell you, they get the same work in the US from 1 person which they get from 4-6 in India. The communication overhead is significant. Infrastructure costs are significant.

With those numbers, and considering that this is largely undifferentiated work that you are talking about, the salary comparison is more like $30k-$50k, which is still cheap today, but won’t be forever.

Sramana Mitra Saturday, March 1, 2008 at 10:54 AM PT

Sramana,

This is the first time I’ve heard that it takes 4-6 Indians to do the same amount of work that it takes 1 US worker. It is one of the most Asinine suggestions I’ve come across in the whole debate.

One quote comes to mind, that was made popular by Al Gore – “It is difficult to get a man to understand something when his salary depends on his not understanding it”

It appears to me that you’ve spoken with few such individuals who would like to believe such a notion because if they did otherwise they may be out of work in the future.

As per latest report (I would highly recommend you read it) from McKinsey and Co. the cost of interaction (which you term as communication overhead) is falling drastically due to inventions like email, VOIP/Skype, free video calls, online meeting tools etc. However, as per the report outsourcing is no longer being done just to save labor cost. There is growing trend to do outsourcing so a company can FOCUS on core competencies, and outsource functions such as IT, accounting, procurement etc.

You article presents a single dimensional view based on perhaps few casual dialogs with individuals who are personally threatened by outsourcing. The truth is that there are tens of other factors than just the rising salaries that you fail to look into. Even on the rising salaries you fail to recognize that there is a huge gap between starting salaries in India and US. If your one dimensional analysis is true then IBM, Accenture, EDS, CGI etc. are in for a lot of trouble going forward. IBM’s next two decades will be built upon the foundation they have laid in India. Their huge market research departments are obviously not seeing what you are seeing, and neither am I.

I posted some of my comments in the “death of Indian outsourcing” blog and there is every reason to believe that your declaration of death of Indian outsourcing is vastly inaccurate and simply alarmist in nature. In those comments I have presented the case why there will be lot more IT jobs in 8 years in India than today.

Another dimension that you might want to research is that we now see IT/
ITES as part of a broader concept of ICT (Information and Communications Technologies). In Jan 2008 India added 11 million mobile subscribers. By mid April India will have MORE subscribers than the United States (257 Million), however the tele-density in US is about 92% whereas in India it is 24% !!! The rate of acceleration has never happened on this planet before. By 2014 India will be the largest (in dollar terms) telecom market in the world and you want me to believe that there will less IT jobs in India in 8 years than there are today. IT jobs in telecom alone will blow the estimates you are presenting and we have not even factored efforts like land registry systems being put in place, IT support for $360 billion dollar infrastructure build out, IT support for domestic Airlines that is seeing the like of even Air India buying 80 new Jets, IT support for land development companies etc. etc.

Regards
Surinder Puri

Surinder Puri Saturday, March 1, 2008 at 2:14 PM PT

Surinder,

What an asinine idea that just because YOU have never heard of something means it cannot be true. Surely, you are not the benchmark of the world’s repository of knowledge?

Anyway, let me address some of the points you raise here.

It probably doesn’t actually take 4-6 people to do what one person does. However, the IT Managers buying resources and outsourcers selling projects have perpetuated a mechanism called “padding”.
I don’t know what part of the outsourcing eco-system you work in, but perhaps if you were selling projects, you would have heard of it.

In the worst of these situations, projects are over-staffed by 6x to 10x. IT Managers think, “Indians are not as productive as the Americans.” The outsourcers readily agree, since they get to bill more headcount for the project.

The net result is the brand impact: “Indians are less productive” and “Indians are low quality”. Not good for the long run.

Also, communication overhead is not just communication costs. There is a smoothness of communication that gets achieved by working together in the same office … by dialoging back and forth, and being able to pop your head into an office when questions or doubts arise.

Yes, some of this can be bridged by IM and VOIP,
but the time zone issue is still a major factor.

When I use the term communication overhead, it is not about phone call costs and such. It is about this “soft” communication.

Also, as people move out of desperation, they start looking for quality of life. Working all night, in the long run, is not a sustainable modus operandi. It makes having a healthy family life impossible. In the next decade, we will see burn-outs in India due to this routine.

Also, as I said in the article (if you care to read it), “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.”

Also, your point on Indian Telecom industry … I said above: “I agree with you, and I have said before, domestic producer-domestic consumer is a much more sustainable business model for India in the long term. Today, IT companies are doing less than 2% of their business in India. Over the next 8 years, this % needs to go up. In due course, Indian corporations also need to learn to expect to pay more for IT.”

If you are not so enamored by the idea of listening to your own voice, you may want to join the discussion, may be even listen and learn.

One of the reasons I am capable of producing a blog of this quality and depth is because I do listen and learn.

All the time.

Sramana

Sramana Mitra Sunday, March 2, 2008 at 11:34 PM PT

for all your bluster, Sramana – you know and i know – you are only partially correct.

v bosco Monday, March 3, 2008 at 5:18 AM PT

I am speechless… not because of your weak response supported by mediocre research but by team India beating the Aussies in Sydney in the first final and the little champs of India becoming the world U19 champions.

The cricket team today represents the mood and the attitude of new India. Young and the restless rising from small towns with little or no resources to make a splash on the world stage, proving “intellectuals” (or should I say pseudo-intellectuals) wrong. What this boundless youth energy and enthusiasm, supported by the irreversible reforms will do, cannot be judged, measured or predicted by us in the west by writing few blogs…

Over and out…

Surinder Puri Monday, March 3, 2008 at 10:11 AM PT

Surinder your last comment on cricket echos what I am feeling today .
Death of IT industry vis-a-vis $ / rs ratio and India moving up in value chain is discussed ad nausea m my take on that is our IT industry is like Japanese automobile industry of the past started as “cheap labor” as author would call it and now numero uno.

Veresh Monday, March 3, 2008 at 10:51 AM PT

Sramana, you will be the greatest if your forecast is true. I say so because way back in 2000 we laughted at NASSCOM and McKinsey when they said $ 50 B by 2008. Afterall in 2000, it was the end of Y2K programming and most programmers were genuinely concerned of being laid off.

My own view is your forecast is pre-mature. Products are immaterial to the whole discussion and I will leave that aside. Accenture does not produce anything. Over the last few years many consultants from India have started to work directly with western clients. I am one such example. I do ALL the things that my friends in the west do with a support team back home and sometimes at the client’s location. I know of so many of my friends who are increasingly doing complex tasks. The so called ‘Thinking’ bit. Admittedly this model is not perfect but it has significantly improved over the last 2-3 years. All you have to do is study how kids evolve over time. Many of the so called ‘low quality’ programmers are fairly OK after the first 2-3 years.
The fact of the matter is China’s impact if any will be to reduce some of the excessive wages that people are being paid. The biggest problem with your argument is that it is simoly impossble to find programmers (of any type) in the west. There are very few technical graduates are only a small proportion are interested in programming. Then there are a large proportion of people who come via certification programmers. In can vouch that there are as good or mostly worse than programmers back home.

In summary, there are problems, many of which you have outlined in your article. Having said that, ‘death of outsourcing’ is a conclusion too far. All the best to your theory otherwise. I have heard it so many times. May be you are the ‘one’ :-)

Chandra Monday, March 3, 2008 at 12:22 PM PT

Chandra,

I neither want to be the greatest, nor, really, want my forecast to be true. This article is supposed to be a kick in the butt of the folks who have their heads buried in the sand.

I want to make them think.

I want to make them react.

I want them to shake off complacence.

I want them to face facts.

Sramana

Sramana Mitra Monday, March 3, 2008 at 1:38 PM PT

As an American working for a MNC, but executing nearly all of my work with Indians, I find this thread very interesting. I am particularly surprised at how “resistant” many posters are to any connotation that there could be a threat to the Indian Outsourcers. This is a global world and others (IBM, ACN, MSFT) are competing and trying to survive. Evidenced by Cap in Europe. The Indian firms do need to move up the value chain and in fact become more global in thought (versus where they DO work). Then, watch out world.

G Anthony Tuesday, March 4, 2008 at 8:18 AM PT

Sramana,
Interesting article. A few observations.
1. I am strong believer that the cost arbitrage will wade away. And as you rightly pointed out its already seen. However I believe that ‘scale’ is some area where probably only China can compete with India. And many indian companies are already setting up shops in China.
2. For software development I dont see accent as an issue at all. for voice based BPO it is. I doubt if work will move back to US, but places like philippines etc would have more share. And many indian BPO cos are already accepted the fact and hence dont put much focus on the voice part
3. Moving up the value chain – used umpteen no of times – i guess and i believe – nothing much will be seen in software development. But in BPOs/ITeS it will be seen. You will see the players moving up (they are already doing so) doing higher end analytics work for their clients which will fetch them higher margins too.

sanjay Saturday, March 22, 2008 at 10:52 PM PT
  • I think high real estate prices can cause measure damage to an IT industry.

  • Seriously speaking average working efficiency of Indian IT employee is very low. They have problem with their attitude. E.g. Coming late, leaving early. That’s why you will find large team working on small piece of code (billable to client) with least efficiency. I know this because I am working with renowned IT MNC.

  • Chauvinism is another measure problem, not visible but true.

Nikhil Tuesday, March 25, 2008 at 1:36 AM PT

btw it can cause major* damage :) not measure

Nikhil Tuesday, March 25, 2008 at 1:46 AM PT

I read many articles around this article and previous and responses of readers.

I found that the writer is not yet mature to write..may be she needs to wait and work hard next 7 years before she can learn using right language.

About the points she conveyed, those might be correct – may be partially.

Her comment on “thinking” is without thinking anything. That proves what she really knows about the topic.

Comment on “3-4 Indian IT people = 1 US” shows prejudices.. I am in US since last 10 years and I always found that actual executers are contractors or offshore staff. Staff in US normally talks a lot to make things complex.. ( I have worked in Apple, Cisco, MS and few other small companies in CA) Most of the US staff prefers to work from home ( you know what does this mean) and even if they appear physically hardly works. Thats true for Indian permenant employees in US as well.

Reason MS and Cisco prefers Indian and chinese staff is but obvious.. they do want to produce something at the end of the day to sustain in the market.

Alps Thursday, March 27, 2008 at 10:29 AM PT

Very interesting thread!!!

Many points that Sramana raised are true. These things need to be taken care of. But let me show certain points nobody ever care to mention:

[1] Quality does not matter!!! Yes, they do not, when you get a low-quality work in a very low-cost work. C-level executives are so greedy that saving 1$ would force them to look anywhere homo sapien lives. This greed is something that fuels the idea of outsourcing in the first place. So regardless of the fact that we are qualified or not, it is still the cost that makes us SPECIAL. And it is the cost that may throw us out of the game.

[2] Quality of software services is such a messy area that nobody can figure out a universally acceptable way to measure that. A CMM/ISO measure only measures certain guidelines, nobody measures how much the service gets improved. The general perception about Indian Software Services is that they are impressively qualified compared to what they are paid for.

[3] Sramana, what do you mean when you say Indian Outsourcing Industry? TCS/Wipro/Infy/Satyam? Nah, they will not die even if work shifts to Africa. Why? read below:

They will open the shops there. They know how to cut costs and talk to foreign governments!! Do you know who is implementing core banking system in Bank of China? Do a search. Do you know how many offices Wipro has in China now? Do you know what is the biggest TCS delivery center in Europe? Hungary!! Do you know who happens to employ a bigger work force in South America than great IBM? Do you have any idea how big TCS BFSI team is in Russia? Do you know couple of months back when IBM wanted to increase head counts in Vietnamese center and wanted to look at their domestic market, whom did they found as the biggest competitior? An old foe from India.

If you mean Indian IT workers as IT Industry then we have a lot of reasons to worry about. Some workforce will be shown door to certain extent. Others will receive a salary cut. But look at the bright side buddy: no more all nighters, no more request to turn the office AC on during the weekends, less coffee in the stomach. Besides how long would you pay a guy 10 lakh per year…when he does not know the difference between mainframe and UNIX servers? Yes, I know such a case who used to work in UNIX server and thought that all of his commands are accessing files in Mainframe. Hilarious? Then you have not heard of somebody who will press F key and 4 key when he was asked to press F4.

Sorry!! too long!!!

Sramana, questions are important, answers can be debated until the great time moderates them.

Sid Friday, April 4, 2008 at 4:24 PM PT

No, I don’t mean TCS, Wipro, etc. You are behind on your Reading. Read my IndoChina war article for that.

I mean the IT workers in India who are in danger.

Sramana Mitra Friday, April 4, 2008 at 5:29 PM PT

Yes, that is actually true.

I made the mistake because usually in India, IT industry is perceived as combination of those service giants, not we the engineers/programmers. As somebody in your blog pointed out: we r star-obsessed.

But I guess that is the order of the day. Some of us has seen it from quiet far, but many of us could not see that when light reflected in outsourcing dollars blinded them. As it happens in USA, those who cares for the technology joins the IT industry now-a-days. Others shifts to the next in-thing. We shall probably follow that path. Does anybody know what is the scope of bio-tech product companies n Blore? That “embedded” boom never arrived.

sigh sigh

Sid Friday, April 4, 2008 at 8:26 PM PT

While the commentary brings out a skeptical future of Indian IT/ITES, it forgets that the current cost center in India is restricted around major metro’s (Tier I) hence steep compensation and taxation. Going forward I believe the next expansion is going to be around Tier II & III which would offset the cost drastically. However I agree that there would be always the threat of global competition, but if you see the demand forecast and also technology/Process migration I see a sustained growth for sometime to come

gaurav Friday, April 25, 2008 at 6:58 PM PT

[…] driven advantages if they want to maintain their business momentum. She followed-up with “Indian IT Industry: The Next 8 Years” and “India’s Labor Arbitrage Strategy“, which reinforce the point that […]

The Symbio Journal » Blog Archive » China vs. India Outsourcing - An Unbiased Opinion Wednesday, June 4, 2008 at 12:46 AM PT

It’s true that the salary hikes are real killers of IT/ITeS industry in India. But this is true only to urban areas, tier-I, Tier-II cities. This is due to high cost of living in these areas(Which is again created by IT/ITeS industry itself).

Bangalore was never so costly some 10-15 years back, but now ordinary man cannot even think of living there. Only way to get rid of these problem is to outsource some portion of jobs(At least low-end, less-skilled jobs) to rural BPOs.

I’m sure that the person who is working for 10K in urban area is willing to work for 5-6K in his village or hometown nearby. This is because the cost of living(Mainly commuting, accommodation & food) in tier-III cities and villages are very less compare to urban areas. More than that the pollution level and stress level will also decrease as you move on to tier-III cities.

Though governments are trying to push this strategy, companies are still not very serious to take up this. Though some companies are already doing that, they consider this as social service rather than business strategy.

At least now companies should take this matter seriously and move the jobs to villages, towns and help in bridging digital divide gap.

http://technology.ravisblognet.com

Ravi Thursday, June 12, 2008 at 12:12 AM PT

I have been reading your articles, posts by readers and your responses to those posts. It looks to me that you do not accepts other’s views. You kind of get annoyed on being said you are wrong.
I know you base your views on some inputs from clients. But you still do not get the real pulse. I have been working in outsourcing industry for some time. Working in UK. And I did find British guys not better than India at all. Sometime Indians do far better a job than British. There have been many surveys recently here and british employers say they prefer Indian to locals because of better productivity and better committment.
I hope you accept others views and you put your views based on more research.

I like your articles in one way that they raise worst case scenario. so we try to be prepared for that future even if it comes.

regards
Prahlad

Prahlad Friday, June 27, 2008 at 3:48 AM PT

“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.”

Sramana, I am wondering why did you base your article on an assumption.

BTW, nothing will happen.IT companies will move to smaller cities and still execute project at the some cost as they are doing now. Laid off people will find job in smaller cities with less salary. There will always be engineers/graduates to work at a lost cost. No worries there.

Saswat Praharaj Friday, June 27, 2008 at 8:59 PM PT

Hi Ramana,

I am late into this thread.

As far as salary hikes in India are concerned, I believe there is a big hype going on in the Indian market.

First of all, ‘many’ Indian IT workers wrongly feel they are head and shoulders above the other disciplines.

‘Many’ are horribly short sighted, over confident, over ambitious [trying to catch up in the shortest time possible] with the lifestyle they see in the short stints in the developed countries.

‘Many’ think in I, me and mine – lacks team work.

The good point is that many is not ‘all’.

Indian companies would invest more into automation, code generators, templatizations.

Indian companies would move into smaller cities, employ people whose feet still touch terra firma.

Also I believe, drawing a similar parallel, this is exactly what happened in the US and other places also; which is why jobs started getting shipped in the first place. It is a self correcting cycle.

Thanks

Aditya Choudhuri Saturday, August 30, 2008 at 10:38 PM PT

[…] her blog [Indian IT Industry: The Next 8 Years], Sramana Mitra delves into the cost aspect and points out that with an average increase of 15% […]

Commoditization and Labour Arbitrage « Kishore’s Law of Capacity Leasing Wednesday, October 1, 2008 at 5:19 AM PT

i felt like she is pouring her personel grudge abd by the way your expectations sux.

me Saturday, July 11, 2009 at 5:21 AM PT

Hi,

Very very late here..
Read the post and the comments. Makes for interesting reading.
Some of the points raised by Sramana Mitra are ‘slightly’ true.
I am one of those IT workers that are supposedly going to be adversely affected..soon.

1. The point that it takes 3 – 5 Indians for a job that 1 guy can do in US is absolutely FALSE. I myself have executed projects with a team of 4 people that made around 25 people in US redundant. Generally on the ground in Indian tech companies a “billable” employee works on multiple projects. I worked on supporting 6 projects and developed 2 more in 1 year in a big IT company in India.
It does not have to be true in all cases. But going to the extremes on either side is wrong. Generally you have good employees and bad ones.

2. The “soft” communication part is a problem. But one does get around it. Interacting with Latin American and Italian clients was difficult for me as they did not know to speak fluent English n the accent issue cropped up. But we got around it.

3. The cost advantage is a very good point. Salaries have increased and the overall CTC is very high. But right now in the middle of the recession, can still see that there are no major Indian tech company casaulties. The billing rates will be re-negotitated and the tech companies that were enjoying the 30% to 40% margins will take a small blow. Actually right now the salaries have started reducing due to the recession.

Companies are still hiring fresh graduates in truckloads..they are paid very less and therein you have your cost advantage. It averages out the total CTC. Tier – II cities are seeing some action and slowly there will be a small shift to these cities for cheap labour.

Good thing about the recession is companies will have to outsource to cheaper destinations to survive. And i don’t know if there are any other places that matches our numbers, English fluency, cost advantages and relatively skilled labour.
So go on.. spread the IT Doomsday prophecies. It might at least serve as a warning for the industry not to get complacent.

Cheers!!

Geoffrey Lobo Sunday, July 26, 2009 at 4:14 AM PT

Sramana,
The point that it takes 3 to 5 Indians for a job that 1 guy can do in US is absolutely crap, utter nonsense. I work in top Indian IT company and currently staying in Europe. As per my observations, it is other way round, 1 Indian = 3-4 US guys.
But I understand your problem. You must be aware of the fact, that IBM, HP, Nokia, TI all product based companies are laying off Americans and moving work to India. So being an Indian American , you folks are at a risk of being kicked out. Please stop bothering about Indian IT companies, think about American MNCs , they are all moving to Bangalore and doing lot of product development in Bangalore.
But don’t worry , if you get laid off or if your company bought out by some Indian IT company, you can always come back and work in India :-)
I understand your frustration, it is really frustrating to see the flights of jobs to India from US. But nobody can stop it.

Abhijit Tuesday, September 22, 2009 at 12:44 PM PT

How thoughtful of you to be so concerned about my job, Abhijit.

I don’t work in the IT outsourcing business, neither do I work for anyone other than myself.

So, quit worrying about me.

Sramana Tuesday, September 22, 2009 at 8:58 PM PT

I agree with all your points.

Also, want to point out that the turnover in Indian companies is very high. People still job-hop aggressively, which is a big downside when considering relocating high-value-added products and services to India.

I manage a 30-person Engineering team in the US. I have considered shipping off some low-value work to India, but even for routine QA, the rates I am quoted are $20/hr. At these prices, and the loss of efficiency/communication overhead, it really doesn’t make sense to do this right now on economic grounds, leave alone by 2015.

Outside of the 24-hour development/service cycle advantage, there isn’t much benefit for most US companies in outsourcing. A few dozen MNC’s will still find it worthwhile – they are large, bureaucratic, and inefficient – and their workers aren’t particularly productive to begin with (mostly because the decision making is slower, and often because that permeates the work culture). But while IBM, Cisco, and the like may well find it easy to attract and retain talent in India, the vast majority of US IT jobs are in small companies like mine, and those are not likely to go anywhere.

JS Wednesday, September 23, 2009 at 8:40 AM PT

Sramana,

Couldn’t help but notice, both risks mentioned in your ‘Politics’ section seem to have realized today…the current global situation does not help either.

I agree with you and folks on this thread should really read and revise – ‘who moved my cheese’. Keep up the good work !

SP Friday, November 6, 2009 at 1:07 AM PT
`