Will India's low cost advantage last

[ab parashar]

This is from an email I rec'd from a friend.

Quoted from a GE Executive-
"Every day for the last four months I have been hiring. I come to office each day, hassle my recruitment team, agencies and consultancies for
resumes, perform interviews, negotiate salaries and make offers. It's amazing to see how people negotiate for salaries and perks, no one asks
anything anymore about what the job entails, what they can contribute, or how they can grow and realize their dreams here. It's about pay, and people are eagerly willing to display unbridled stupidity in managing their careers by focusing incessantly on money. Heck, the time it takes to finalize an offer nowadays, I could send out an offer letter, go have several children, watch them grow, put them through school and then head back to office, the candidate is likely to have finished negotiating his pay and ready to join. This is all fine and dandy; it's a hyper-inflationary job market. What's disturbing is the not-so-new! trend of IT jobs flying out of India. I hear an 850-seater call center has decided to move out of India due to attrition and increasing costs. Hell, my own company has pushed out 100 jobs out of India into Eastern Europe, and I was part of that decision. We need to wake up and smell the stink of the decay we are creating all around us in the IT job market. Year-on-year end people here expect nothing less than 30 to 45% salary increases, where as the average salary hike in the US per year is 3%
and Eastern Europe is 4%. I could go on and on about the quality of the flotsam and jetsam that washes on to my desk in response to job ads, but we all know it. Sometimes it takes as many as 40+ interviews to close one position. Sad part? The bozos still think they are worth it. At this rate IT India better ensure they have transferable skills, because in a couple of years from now they will not have jobs to feed their money-frenzied lifestyles. Let's do justice to the lessons the dotcom tried to teach us, what goes up
must come down."

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Golden statement --> "The bozos still think they are worth it".

Not that I am not an Indian, but I think people who switch jobs for a few more rupees ought to read this.

[Kishore Dandu]

It is pure economics: supply and demand.

As mentioned by the GE guy, as some of the market forces divert the new positions to other geopraphical locations, demand may slow down and the salary will not be the main aspect for a new job(it sure happened in similar sense early 2000s in US after bubble has burst).

I used the word 'may' for demand situation, since it is not a guaranteed situation and many factors contribute to demand reversal(in addition to attrition, salary etc).

[Eric Lemaitre]

Hi ab parashar !

Of course it won't last, but it is impossible to say which level it will reach and when. Right now IT business in India is growing very fast, but obvious factors will make it get lower anyway sooner or later :

_ As IT wages increase much, low cost advantage is of course declining much.

_ AS IT wages range is extremely wide (from very low to USD 150.000 $ with automatic GC for freshers of the most famous indian business university), there is much richness diversity in India itself, household market in particular becoming totally unballanced in India, so some local control (? extra taxes ?) will have to be set to avoid situation in India becoming unbearable.

_ Need for IT staff is becoming globally much lower, especially as software development turns to "software factory" scheme, so world IT staff is much too numerous for present and future descreasing business needs, so IT employment will have to decrease much for India too.

_ Outsourcing has much lowered for many experiences turned bad, so outsourcing flow to India is already decreasing and will stabilize soon, devoted only to companies who prooved they could effectively do it.

Of course all these trends will collide and will make the whole process cahotic, an excess of indian IT staff should arrive soon, as it is already globally the case especially for US & Europe.

Best regards.

[Tim Holloway]

I weep for that GE exec, I really do. The chickens come home to roost. Since about 1985, the idea that a company and an employee owe each other any kind of loyalty is completely pass�. GE was at the forefront of those who were only too happy to claim that cheap offshore programmers were as smart or smarter than the expensive domestic ones, and guess what? They were right!

Eric's got it pretty much nailed down, though I'm skeptical that we're any better at "factory" software production than we were 40 years ago. If we were, we'd have it automated to the point where it was no longer cheaper to do overseas.

[ab parashar]

I myself agree with most of the posts above.

However all of the following are true as well.

1. Outsourcing in India has been going on for the last 20 years and if a company pays a guy '$80k plus benefits' in the US they can pay a person with a similar skill-set $10k/$20k/$25k.....and still save.Unless all the companies have got it wrong at the same time.

2. Indian outsourcing giants like Infosys and wipro have higher profits than established companies like siebel,mercury etc.

3.In the last 15 years a freshers IT salary has gone up by 1100 %
In 1990 - $50 a month, In 1997, $200 pm, In 2004 $600 pm. (It may have dropped a little during 2001-2002).

When I completed my BS in India I had to fight my way into a programming job that paid $100 pm

After completing my MS I got started at $5000 a month...some difference.However.... now,with the kind of offers coming from India I think I might save more in India( and worry a lot less as well!!).

I have been seeing this kind of raise for 15 years and find it hard to believe if and when will all this stop.


4. If you are making $100k in NY and someone offers you $150K then you would probably join,so I dont really blame the jobseekers as well.Its the market that is turning.

Finally to all those who are posting messages like
"I have 1.9 yrs of exprience and 3 offers" or "I have 2.7 years and 4 offers".

Eventually ( dont know when), in India you are going to see lower salaries or job cuts or worse yet, new offshoring destinations.So it will be prudent to stick to a company that provides you with a better project, than change your employer, for a few more rupees.

[peter wooster]

Originally posted by ab parashar:
Eventually ( dont know when), in India you are going to see lower salaries or job cuts or worse yet, new offshoring destinations.So it will be prudent to stick to a company that provides you with a better project, than change your employer, for a few more rupees.

The good times in Bangalore are definitely numbered. I once worked for a large MNC that moved its development from NY to Bangalore and then to Thailand, and Versata just moved its lab from Bangalore to Halifax. The first was to save money, the second to escape the job hopping employees.

[Eric Lemaitre]

Hi all !

Please note that despite the original topic "Will India's low cost advantage last" is interesting by itself, although obvious answer is kind of : "no, present business will make IT wages and richness grow until India is no longer a low cost country", but it leads to another more strategical issue.

What counts right now is that India is getting richer, but its advantages will vanish because other countries will become sooner or later more low cost than her. So real issue is : what use will India make of this temporary richness trend ?

First of all, is India really getting richer, or are only some bodyshoppers and big bosses getting the big bucks while IT population gets only (significant) crumbs of the whole cake, exactly like CEOs in US who made fortunes despite their companies made big losses and fired much employees ? This is capital, for if it is the case it means some indians get rich but not India, so economic advantage will be very brief and present richness will disappear quick. If not, it means India in whole gets richer so can make investments to make this richness last, but which investments ?

This leads in turn to the real final issue, for "there is whale hidden under pebble" as one says in France : as present IT innovation in US in inexistant, will one country take its turn as IT world leader ?

In january NIC (National Intelligence Council), confirmed by other think tank groups such as CIO Executive Council, published a rapport clearly stating US would loose its IT suppremacy within 15 years to India & China. IMHO they may be totally wrong for it may be much quicker, rather within 5 years to India and within 3 years to China. For things go much quicker than previsionists expect, now that they have as good and awfully much cheaper universities than US, flow of chinese students to US universities has already droped by 80% within a very short time, so I believe this trend should be much quicker than expected.

This will happen anyway if 2 conditions exist at this period :
_ in US : total absence of innovation as now and huge use of cheap labour to boost present short profits only without thoughts for future. As present political situation in US clearly shows nothing will change until next elections in 2008, and as K-street lobbies are worldwide so if richness goes abroad they will easilly follow as already being there, this is perfectly possible IMHO.
_ in China or India : use of their present richness (supposing the country gets richer, not some few people only) to make investments so as to become "lead creators" rather than the simple "subordonate doers" they are now, which will allow them to control the whole IT wealth process.

In conclusion the real final question this interesting topic will lead to is : will India & China use their present richness for investments despite some political obstacles (such as lack of democracy in China which could break fair capitalism), or will they just take the money and let US the time to recover ?

Best regards.

[Roger Chung-Wee]

Outsourcing has much lowered for many experiences turned bad, so outsourcing flow to India is already decreasing and will stabilize soon, devoted only to companies who prooved they could effectively do it.

My belief is that outsourcing is likely to keep increasing because of the perceived cost benefits by management. But as someone whose last two projects involved collaboration with Indian outsourcers, including an outfit in Bangalore with a blue logo, it is clear that the outsourcers are struggling to find the technical staff for their projects. You may find that the outsourcer will supply one capable techie for a project, but quite possibly no more. And do not be surprised if they do things like retrain their C++ programmer to Java on your project at your expense.

I predict that the increase in outsourcing will inevitably lead to even lower quality work by the outsourcers. At some point, there may be a backlash.

I am not against outsourcing, but I do wish that it is better handled by those who are making the decision to outsource. If it were up to me, I'd demand to see the CV/resume of all those working on the project. But to outsource just on the basis of perceived cost savings is just dumb.

[Anand Prabhu]

Having been on both sides of the outsourcing world, I think this is about balance. The current strength of the IT industry in India was tremendously due to the existing circumstances of the 90s. The socialistic model created some white elephants in public sector units and many with good degrees struggled to get decent jobs. So the companies and the techies worked extra hard in IT as these firms were hiring decently those days and accepted decent salaries (which seem very modest these days) and worked harder in foreign countries as most of the countries looked upon India mostly as a country of snake charmers. But with time and the terrible economic recession here in US along with the negative publicity to the outsourcing, many companies got to hear about outsourcing and made a mad dash without studying the full implications. So it's an employees market out there in India now and I too feel that the IT industry will see some rough patches. The red flags are out there especially when I notice employees demanding 30-50% increase in salaries each year and even the inexperienced employees demanding a lot of money. And the high attrition rate definitely will impact the IT industry.

[Ramesh Choudhary]

Low cost is not the sole advantage of India.Democracy, Knowledge of English, Gigantic Presence of cheap 'skilled'(and unskilled) labour, stable and secular polity, Robust economy(May be slower compared to china, but ages ahead in stability and sustenance), Presence of reasonably good telecom infrastructure are all factors.Neither Eastern Europe(Including Russia) nor East asia have such factor's.Growth rate of salaries may come down, but jobs moving out on a mass scale is a figment of Wild Imagination.China may be a threat, but the cost of living in chinese cities is more than those of their indian counter parts.

I would be happy if the dumb call centres move out of the country. Some of my friends may find a more meaningful purpose for their survival.

[Kishore Dandu]

Originally posted by Ramesh Choudhary:
Democracy, Knowledge of English

First one is not a major factor, since US companies would have preferred country like UK for that aspect rather than India. English is a minor factor relative to China, but not relative to countries like UK and some other European countries.

Only factor of prominence is, enormous pool of talented folks who can work for cheap wages(of course with better English compared to china).

[R K Parulekar]

I think it will last. Today most of the IT jobs are centralized in bigger cities like Mumbai,Pune,B’lore,Chennai etc. Here the cost of leaving is higher and hence the pay expectations.

Probably IT companies have to de-centralize their bases and open it in small towns and villages where they can easily cut down their cost. Within India itself they can find large number of skilled graduates in small towns and villages.

[R K Parulekar]

I think it will last. Today most of the IT jobs are centralized in bigger cities like Mumbai,Pune,B’lore,Chennai etc. Here the cost of leaving is higher and hence the pay expectations.

Probably IT companies have to de-centralize their bases and open it in small towns and villages where they can easily cut down their cost. Within India itself they can find large number of skilled graduates in small towns and villages.

[Arjunkumar Shastry]

So what are your top five favourite villages where you can relocate?
With current rate of attrition and inflation in major cities I think businesses will move to other locations.Actually its happening but at slow pace.This is true only for offshore companies like Oracle,GE,Unisys,HP which have setup the shops for only cost cutting.Indian majors like Infy,Wipro,TCS might stop recruiting but won't move as their base is located here.

[Preeti Jain]

Even big cities don't have any infratructure to boast about so what can you expect for small towns/villages? Its highly unlikely that companies will shift base to remote under developed locations!!

[Pradeep bhatt]

Arjun meant people have to move to villages becuse companies will move to other countries.

[Anjali S Sharma]

Originally posted by Ravi Parulekar:
Probably IT companies have to de-centralize their bases and open it in small towns and villages where they can easily cut down their cost.

Recently there was a lot of hype about the Chandigarh Technology Park (Chandigarh is a small town in Northern India), but nothing has happened since then. Infact there was a lot of hype regading chandigarh being the next Bangalore but software companies have not shown much interest apart from saying that the place has great potential whenever some one from the adminstration meets them. Apart from Infosys and a few call centers nothing much has happenned.
Companies seem to have problem moving to small towns, I am not sure they would ever want to move to villages.

[Arjunkumar Shastry]

Moving to villages means listening to Gandhi who told 60 years back "Go to villages"
1)Can banks move their corporate offices to villages?
2)Can MPs and MLAs stay in villages and work from there?
3)Can Govt. move its police/administrative offices to villages?
Answer to all these is NO.You can't expect some IT shops to move there and working on power produced by diesel generators and employees drinking well water.
Reserve Bank Of India has headquarter in Mumbai.15 years back when it was thinking of expanding,people expected it might move to some small town.Where did it move? Vashi,mere 60Km from its Mumbai office.Same is ase with State Bank Of India.

[Preeti Jain]

It is a far fetched idea to think that the companies will move to small low cost towns.
About the discussion on weather we will continue to get business concidering the problems of rising salaries and HEAVY ATTRITION in the IT industry, I can't figure out an answer - there just seems to be too many factors involved, but I continuously worry what will I do for a living if/when the bubble bursts and our well paying jobs are taken away. Maybe it won't happen soon but the more it delays the harder will it be for me to look for an alternate profession!(what a pickle!)
[ August 03, 2005: Message edited by: Preeti Jain ]

[ab parashar]

The reality of whats going on is that experts having years of experience are being blindly replaced/outsourced by fresher's/those having 1-2 years of experience.This is where the mistake lies.I am not implying that programmers in one locale are better than others but there appears to be a madness for outsourcing rather than strategic thinking.

Outsourcing compnies are not all alike and not all will be able to deliver. Sooner or later the bad ones will become instinct.

Dont know when this madness will end but if you know what it was to be around in 1999/2000 and then experience 2002 you would know what I am talking about.

[Arjunkumar Shastry]

If you see the type of the jobs done here,majority of them fall in Support/enhancement type.In many companies,freshers have been on bench for months.I am not sure companies first check whether equivalent replacement exists in other countries before laying off experienced guys.Recently one major semiconductor/DSP firm was looking for PERL+UNIX+one CRM product knowledge programmer.After unsuccesfully searching for 3 months,company is thinking back of trasnferring back that job.