Monday April 25, 2005

Indian outsourcing news

The indiadaily.com site has an entire section on India outsourcing news. Yup, I've been reading Indian news (again).

From a quick glance through the list of recent articles, the Indians seem to be concerned that their IT outsourcing industry, while still going strong by the numbers, may be facing imminent peak and decline.

Some selected snippets :

1. How long can price advantage drive India's outsourcing boom?

There is little doubt in any ones mind that the currency differential i.e. 1 US Dollar equals 44 Indian Rupees is the main driving force behind outsourcing boom in India ... so if finally the Indian Rupees starts gaining ground against the US Dollar, what will be the net impact on the outsourcing contracts? ...

... for call centers though the impact will be much severe [than IT sector]. The higher wages in US Dollar terms and negative effects of Indian accents will drive call center business away from India at a much faster rate as Rupee gains ground.

2. Outsourcing becoming unprofitable business - a major new trend

In recent days the escalating cost of employment in India, lack of qualified work force and deflation service prices have made outsourcing a tough business ... the escalating cost of living and shortage of qualified workforce is putting a solid pressure on wage increase ... on top of those countries like Poland, Philippines, South Africa and so on are competing heavily lowering the prices and providing additional incentive to the clients.

While employee salaries have gone up by an average of 20 per cent every year, the average revenue per hour (for a single terminal) has declined by about 15 per cent over the past three years, from $14 to $12.

What is then the future? Some Indian companies have tried to branch out into premium pricing environments - the vertical markets in IT. That is where India is failing. It was a easy honey moon for Indian companies to offer cheap services with less than par salary in the country and Indian rupees trading at a lower value than then the fair market values. But when these factors are taken out, Indian companies find they are nowhere.

3. Outsourcing's Next Phase Has Begun

Outsourcing in India has reached a near-term peak, and meaningful expansion from this point forward will result in higher costs and lower-quality delivery. Business leaders in Asia have been saying such things to one another for months now. Today, we are seeing deliberate action to move capacity from India to next-step destinations like the Philippines, China and Vietnam.

... India's recent hiring growth has been roughly double that of the crazy dot-com boom times in North America ... besides, while rising costs may be a big deal to business leaders who have to somehow budget for them, they probably don't warrant the same degree of concern for individual workers, who see their paychecks rise by 30% from a well-timed job change ...

4. Need for reengineering IT outsourcing

In Europe and America, Oracle (Paeoplesoft) and SAP faces a strange newborn competition from smaller companies that they never thought about. Large back office processing systems based on large traditional databases are being challenged by smaller Web based tools from companies one hundredth the size. India's outsourcing will be now slowly replaced by US and European companies that have mastered the techniques of software engineering productivity in the last few years. Three or four very talented software engineers who also understand business and systems analysis can replace fifty Indian coders. The software engineering field is finally going through the maturity process where coding and traditional testing is replaced with business and systems analysis driven system generation through "configurations". The new technology is astounding and will employ far less people but those who will work as software engineers will make four times what they make today.

- So, let's see. 20% annual wage inflation (and I thought China's 10% wasn't too shabby), competition from Philippines, Vietnam and even Africa (?!), and, I think I might have a bit of insight as to why I heard an advertisement from SAP on local radio this morning.

(2005-04-25 12:06:15 SGT) [Biz] Permalink

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