Outsourcing. No Worries.

Why the World shouldn’t worry

Disclaimer: This post is based on no researched facts. It is completely based on the contents of my head. Read at your own risk

America, is of course worried about outsourcing to India, and how all its jobs are going down the tube.

But lest ye think that India is all ok about everything, there has been lots of talk over the past few years that India will lose its edge to China, or the Philippines, or Estonia or somewhere.


This whole outsourcing thing will actually just cease to be an issue soon (for Americans) and Indians also need not worry. Here’s why:

1)Indian salaries are rising much faster than American salaries are falling
In the outsourcing industry (software, BPO e.t.c), the average pay hike, for the past 2/3 years has been a whopping 30% (no sources, this is just based on my anecdotal evidence). A pay hike is expected every year in the software industry! This when inflation is a low (by Indian standards) 4%! Now the SOLE reason for outsourcing is cost. If that cost advantage disappears, there will be less outsourcing. If salaries in India are rising fast (in this sector) eventually outsourcing becomes less lucrative. Another reason for this salary rise is a shortage of skilled workers in India!!!

This brings me to point 2

2)There is no other competition
If India is going to become more expensive, then the work should just shift to other countries which are cheaper right? No. Why? Because the uniqueness of India, lies in BOTH the quality and quantity factor.

India has a large number of qualified and engineers, and continues to churn them out. Other countries may be able to match on quality, but few will able to match on quantity. Quantity is an important factor, because of the way outsourcing works (in India). Put simply, it’s “Throw 2 billed engineers and 2 shadow resources on this problem, and get it done!”, i.e. have four people do the work while you’re only charging for 2. Even within that equation, those 4 engineers are making more money as compared to the pre-outsourcing days. No other country has the amount of qualified engineers that India does to enable it to perform outsourcing cheaper rates than the Indians! They may be able to sustain it temporarily, but the wages would rise faster in a smaller country than they do in India. So attempting to outsource (on a large scale, i.e. the type of stuff done in India) would be a very temporary phenomenon, short-lived.
Okay so quality and quantity. Now here’s another crucial factor: Time Zone.
The bulk of outsourcing comes from America. India is 12 hours ahead of 1 or 2 US time zones. What does this mean? This means that you can provide 24 hr support to American customers, and charge DAYTIME rates for the full 24 hours. While India is also handling US daytime customer service, the nightly stuff is what makes the huge difference. You have somebody who is (sort of) up and perky in their time zone, but working through the American night time. This makes it theoretically possible for an American company to get something like 18 hours of work done in an 8 hour workday, by farming problems over to the Indian wing after their office hours. While this is not something revolutionary, it is successful because companies who would not be able to afford this before can do so now! (Multinational corporations have been using timezones to their advantage for centuries, but now even without a global presence, smaller companies can make use of this).

Wait. If we’re talking population, what about the only other 5000+ year-old civilization in the neighbourhood?

3)What about China? Nothing.
India has nothing to fear from China in the software field. For lots of reasons.
One of them is English. Yes, we’ve been hearing for a while now that the Chinese government is pushing Chinese people to learn English. But this is already true of many people in India. English and Hindi are part of the Indo-European language tree. Chinese is not. It is much, much easier for an Indian to learn English, than for a Chinese person. This is not to say Chinese people will always suck at English, but this an obstacle in the way.
Another important language issue is the language of the operating system. In India, computers using local languages never took off, for a variety of reasons. But in China, Windows, Linux e.t.c they are all in Chinese. Now if your customers are American, they’re probably using the English version of Windows. If you’re in India, so are you. So What? Weelll, technically, an American company could ship its English product over to a Chinese company, but then there’s added overhead: If the American company’s software product is in English, there now needs to be an interpreter betwee n the Chinese developers and the English designers….and some things can be lost in translation. But in India, you learn Computer Science in English. And thus, certain things are instantly clear. Language makes a difference…

Ok now the thing is that determined Chinese can overcome this. But there’s another big hurdle against them. A Chinese worker is already more expensive than an Indian one!. I say this again, with no evidence. I base this simply on the GDP per capita for the two countries. China’s GDP per capita is higher than India’s. This means, in a very inaccurate sense, that China’s income is higher than India’s. This means that the cost of a Chinese worker (his/her wage) is higher than an Indian worker’s. So not only do Chinese not have the requisite large pool of English speaking graduates, but the ones they do have will already be more expensive than Indian ones.

Add lack of a decent legal infrastructure to handle IT issues, and the lead that India already has in Software/BPO, China is not a threat in this particular sector.

So..in conclusion, eventually outsourcing will peak, then drop, and that day is not far. Also, although I dismiss the competition, it doesn’t mean that they won’t get some small share of the pie. Eventually, faster than people think, outsourcing to India will no longer be the value for money it used to be, and that will be end of the large scale trend. In order for the Indian software companies to survive, they will have to “move up the value chain”, into the consulting biz, and also by developing their own products. Infy, Wipro and TCS already have their own products, and other big companies are working to develop their own, to shut up cynics, who constantly crib and question: Why doesn’t India ever produce a Google or a Microsoft? And consulting is already happening.
End result: India gains a reputation in a “knowledge” field, and if leveraged correctly. gets to exploit it as Brand India. As for the Americans, eventually the outsourcing will drop off, some jobs will move back, and Americans will eventually discover the Next Big Thing and ride the next wave.


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