Is India Pricing Themselves Out of The Market

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Where's Waldo Be Damned! Where's Blaine?

It seems like forever now that Joe I.T. Worker has been pacing the widow’s walk, waiting in vain for our technology jobs to come home from India like longshoremen’s wives keep watch during Ophelia crab season.

And despite the fact that your 55-year-old neighbor’s sweet software engineering gig was just lost to a 20-year-old in Bangalore, India – where household income has surged 10 percent each of the past five years – the winds of change are blowing from east to west.

Here are three reasons why Americans can expect a reversal of fortune in the outsourcing of their jobs, especially to India.

3. The Obama factor: The President-Elect has been adamant in saying he’ll keep jobs stateside. In fact, Barack Obama is a proponent of nixing tax breaks for companies who keep jettisoning jobs way out east. That would definitely count as “change.”

2. Wage inflation nation: A number of official-sounding organizations boasting confounding acronyms have come to the same conclusion: Wages are rising about 15 percent annually for India’s IT workforce. That can only continue for so long before domestic companies’ bottom lines can no longer justify marginal human capital savings in the face of rampant negative PR. This is especially true when taken in tandem with the possible tax incentives an Obama administration will offer.

1. Our own pathetic economy: The fact that we’re in recession brings a couple of wildcards into the outsourcing discussion. First of all, the Indian rupee is worth much more now against the American dollar than when the first 100,000 jobs were shipped overseas. Second, with our unemployment rate at nearly 7 percent, IT workers are willing to work for less right here at home. Forget about Silicon Valley perks like kegerators and free massages; U.S. workers just want jobs.

The outsourcing flow won’t switch to ebb overnight. The Oracles of the world won’t put a stop-hold on shipping jobs overseas tomorrow. But the stage is set. As Forbes said back in February 2008 “The cost advantage for offshoring to India used to be at least 1:6. Today, it is at best 1:3. Attrition is scary.  Jobs that are low value-added and easily automatable should and will disappear over the next decade.” They further point out that as the 1:3 cost structure becomes 1:1.5, it will soon become inefficient to use Indian labor. Why not Kentucky or British Columbia? For many Europeans, Eastern Europe has already become more compelling than India. The pure labor arbitrage equation will no longer balance.

One last interesting point to note.  Salaries in India have risen over 15% last year (2007), which is almost a full percentage point higher then the previous year.  This year India’s wage inflation is expected to rise up to over 15%.  That makes their fifth consecutive year of salary growth above 10%.  Now if you add this to the appreciation of the rupee against the weakening dollar at the beginning of 2008, and assume that a 15% salary hike rate, with a cost advantage last year of 1:3 in favor of India, it doesn’t seem likely that India will have any cost advantage in the next decade.  This of course, is also assuming that the wages in the United States remain constant.  What happens to India should their cost advantage disappear?  Already, I have spoken to dozens of companies and creatives who have stopped using India for their web development, and have since switched to using designers and programmers in other countries.  Countries like Indonesia, Argentina, and Eastern Europe pose a great threat to the Indian IT market. Sites that used to cost $1000 to build in India now cost $3500.

My advice to anyone thinking of outsourcing is simple….There is a big world out there and many of the countries in this world produce over qualified developers who speak several languages perfectly.  India is not your only option, look around a bit, you will be pleasantly surprised.  If you don’t know where to start to find these type of freelance rock stars, I will input a shameless plug here and suggest you look on www.vois.com.  There is an amazing group of talented developers from numerous countries, even in America, who are ready willing and able to work.

So who knows, the next time you call a virtual help desk, Joe might answer the phone. And his name might really be Joe.

Although this happened after I finished writing the article, I wanted to point out the recent developments at Satyam, which I believe is India’s 3rd largest outsource company, the chairman has just admitted that his last 5-10 years of financials are bogus, inaccurate lies.  Satyam is the word for truth when translated into English, which is ironic since it is anything but the truth.  It is easy to recognize that India’s corporate giants can now pull off huge scams and scandals not much unlike American giants like Enron and Worldcom.  If business wasn’t falling off, they wouldn’t have to falsify this information in order to maintain their steady foreign inflow.


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