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The big question is will China, Russia, Vietnam or Brazil become the future of information technology offshore outsourcing?
Industry experts believe that cost wise doing business in India has come under scanner as remuneration for the Indian IT professionals has touched record heights. An average Indians salary in the IT sector has rose to nearly 12 percent last year, and they are expected to go up by another 15 percent again in the current year.
As Indians salaries go up, many believe that this the time for other offshoring hot spots, like China, Eastern Europe and even new players like Vietnam and Brazil to plunge into this field. Some even consider that rising salaries in India will eat into the cost advantage over U.S. IT workers; which will ultimately return the offshore jobs back to the country. But thats only speculation.
There are two points to counter this debate: Productivity and Scale. Salaries may rise, but there are certain factors that cannot be overlooked, such as experience, infrastructure, high productivity levels and economies of scale to consider. For example, the cost of doing information technology in India is coming down, as the range and complexity of projects that can be offshored to India is increasing.
But one wonder how will it help! If you take away the salary aspect, what makes India different from China, Russia and the numerous other countries waiting to grab every bit of IT work?
One reason is that India is experienced player and have advantage over other nations. First-generation IT offshore providers cut their teeth on mainframe legacy code maintenance and all that hardcore work that few IT professionals in the United States would not care to do anymore. Now Indian IT companies are making it big by striking the golden spot of the enterprise application package market, offloading many of the high-volume, routine tasks that many companies would struggle to maintain with high-cost U.S. resources. And moreover countries like China and Russia simply dont have the expertise to handle these tasks, and it will take them years to come anywhere close to India on that matter.
In addition, many India-based companies have discovered the power in Indias university system to attain efficiency. While its impractical to expect "freshers" to be highly productive the day they pass out of college, but Indian businesses with strong training programs quickly supplement their new college graduates with strong theoretical IT foundations with the practical skills needed on their projects. College graduate salaries start at less than $5,000 per year, which is about half the salary or less of a seasoned Indian software developer.
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, but it is quite unlikely to upset the offshore-to-India. 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 governments focus on dramatically upping the supply of technical graduates over time, it ensures that India keeps moving up that steep productivity curve. Thats the power of productivity and India has proved it.
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